Moody’s Ratings has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings from Caa3 to Caa2. Additionally, the rating for the senior unsecured MTN program has been raised from (P)Caa3 to (P)Caa2. The outlook for Pakistan has shifted from stable to positive.
“We have also upgraded the rating for the senior unsecured MTN programme to (P)Caa2 from (P)Caa3. Concurrently, the outlook for Government of Pakistan is changed to positive from stable,” it was reported.
“Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating,” it said.
The global credit rating agency highlighted that there is now increased clarity regarding Pakistan’s external financing sources, following a staff-level agreement with the International Monetary Fund (IMF) on July 12, 2024, for a $7 billion Extended Fund Facility (EFF) lasting 37 months. They anticipate that the IMF Board will approve this facility in the coming weeks.
Moody’s reported that while Pakistan’s foreign exchange reserves have roughly doubled since June 2023, they still fall short of the levels needed to cover external financing requirements. The country continues to depend on timely support from official partners to satisfy its external debt obligations.
Additionally, the agency indicated that Pakistan’s Caa2 rating reflects significant challenges in debt affordability, contributing to high risks related to debt sustainability.
“We expect interest payments to continue absorbing about half of government revenue over the two to three years.”
“Sustained reform implementation, including revenue-raising measures, can increase the government revenue base and improve Pakistan’s debt affordability,” it said.
“The outlook for The Pakistan Global Sukuk Programme Co Ltd is positive,” it said.
“We have also raised Pakistan’s local and foreign currency country ceilings to B3 and Caa2 from Caa1 and Caa3, respectively.”
“We estimate Pakistan’s external financing needs to be about $26 billion for fiscal 2025 (ending June 2025), comprising of around $22 billion of external principal debt repayments in fiscal 2025 and another $4 billion (about 1% of GDP) to finance the current account deficit,” Moody’s said.
Additionally, consistently completing IMF reviews on time would enable Pakistan to secure ongoing financing from official partners, which is crucial for meeting external debt obligations and rebuilding its foreign exchange reserves. In July, Pakistan reached a staff-level agreement with the IMF for a 37-month loan program.
However, final approval is contingent upon the IMF Executive Board and requires Pakistan to obtain timely confirmations of necessary financing assurances from development and bilateral partners. This includes rollovers or disbursements of loans from longstanding allies such as Saudi Arabia, the United Arab Emirates, and China.
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