ISLAMABAD: Finance Minister Ishaq Dar has warned Moody’s of a “befitting reply” if the credit agency did not reverse the downgrade of Pakistan’s sovereign credit rating.

“Don’t panic,” he responded to a question pertaining to Moody’s decision to cut Pakistan’s sovereign credit rating by one notch to Caa1 from B3 outside the accountability court in Islamabad.

The New York-based rating agency cited that increased government liquidity and external vulnerability risks in the wake of floods in August that killed more than 1,600 people and caused billions of dollars in damage.

“I have talked to Moody’s and told them that they should not have done this,” he said, adding that they could only inform it as a formality and advised the credit agency to first talk to the country.

He supported the ‘don’t panic’ statement by saying that Fitch – one of the three leading rating agencies alongside Moody’s and Standard Poor – had recently rated the United Kingdom from stable to negative.

He was of the view that rating was important for issuing bonds and sukuks. “Now, we are not there. We have to improve our economic indicators as we did in 2013,” he said, “I remember we had floated $500 million of bonds in the market and it was oversubscribed 14 times for us.”

Dar’s ministry issued a statement on Friday in which it “strongly contests” the ratings, adding that it had adequate liquidity and financing arrangements to meet its external liabilities despite being hit by catastrophic floods.

“The rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” the finance ministry said in a statement on Twitter.

The finance minister said that the government had shared its concerns with Moody’s. But, he added that the result was issued overnight as it took months for them to release it.

Dar said: “I have told them that if you bring some capacity… they are meeting me and in every meeting they take time. But, I have told them if you don’t stop it as you will meeting me next week so I will be giving a befitting response.”

Concerns are rising over the health of Pakistan’s economy as foreign reserves run low, the local currency weakens and inflation stands at decades-high levels despite the resumption of an International Monetary Fund funding programme in August.

The biggest worries centre around its ability to pay for imports such as energy and food and to meet sovereign debt obligations abroad.

Data this week showed foreign exchange reserves at the central bank stand at $7.9 billion. That covers imports for barely a month, despite IMF funding.

The central bank said the latest $100 million drop in foreign exchange reserves over the week ended Sept 30 was due to external debt repayments, including scheduled interest payments on Eurobond.

(With input from Reuters)