Moody’s Investors Service announced on Tuesday that Pakistan’s credit rating remains at ‘Caa3’ with a stable outlook, despite facing political and economic hurdles.
The international rating agency completed a review of Pakistan’s credit status, confirming no change in the country’s rating.
This decision follows the downgrade from Caa1 to Caa3 in February of the previous year, attributed to challenges with the International Monetary Fund (IMF) program and decreasing foreign exchange reserves.
The agency cited the aftermath of the controversial general elections held on February 8, 2024, which has led to heightened political risks.
A coalition government, expected to be formed by the PML-N and PPP parties, faces uncertainty in its ability to negotiate a new IMF program as the current one expires in April.
This uncertainty is compounded by doubts regarding the government’s commitment to implementing the necessary reforms.
Moody’s expressed concerns over Pakistan’s liquidity and external vulnerability, noting the country’s foreign exchange reserves are insufficient to meet its external financing needs in the near to medium term.
The report also highlighted Pakistan’s fiscal challenges, including a significant debt burden and governance issues that impact the effectiveness of monetary and fiscal policies.
Despite these challenges, the ratings agency acknowledged Pakistan’s economic strengths, including its large economy and potential for moderate growth.
The caretaker government’s efforts to maintain economic stability and secure financing from the IMF and other sources have been recognized as positive steps.
However, Moody’s emphasized the limited visibility on Pakistan’s financing sources post the current IMF arrangement, which concludes in April.
The country’s economic outlook is tempered by its vulnerability to environmental challenges, such as heatwaves and floods, which pose additional risks.
The stable outlook reflects Moody’s view that the current pressures align with the Caa3 rating, assuming risks remain balanced.
The agency highlighted the importance of continued IMF engagement to secure further financing, which could mitigate default risks and alleviate social pressures.
