Moody's changes Pakistan's outlook to stable from negative, affirms B3 rating

December 02, 2019: Moody's Investors Service ("Moody's") has today affirmed the Government of Pakistan's local and foreign currency long-term issuer and senior unsecured debt ratings at B3 and changed the outlook to stable from negative.

The change in outlook to stable is driven by Moody's expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility. Such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild.

Moody’s says in its just released report that fiscal strength has weakened with higher debt levels largely as a result of currency depreciation.  Ongoing fiscal reforms, including through the country's International Monetary Fund (IMF) programme, will mitigate risks related to debt sustainability and government liquidity.

The rating affirmation reflects Pakistan's relatively large economy and robust long-term growth potential, coupled with ongoing institutional enhancements that raise policy credibility and effectiveness, albeit from a low starting point. These credit strengths are balanced against structural constraints to economic and export competitiveness, the government's low revenue generation capacity that weakens debt affordability, fiscal strength that will remain weak over the foreseeable future, as well as political and still-material external vulnerability risks.

Concurrently, Moody's has affirmed the B3 foreign currency senior unsecured ratings for The Second Pakistan Int'l Sukuk Co. Ltd. and The Third Pakistan International Sukuk Co Ltd. The associated payment obligations are, in Moody's view, direct obligations of the Government of Pakistan.

Pakistan's Ba3 local currency bond and deposit ceilings remain unchanged. The B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling are also unchanged. The short-term foreign currency bond and deposit ceilings remain unchanged at Not Prime. These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country.