Pakistan to face marked weakening in debt metrics owing to large borrowing needs: Moody’s

March 31, 2020 (MLN): Moody’s has said that Pakistan is one of the countries that might face persistent tightening in financing conditions, which in turn will increase its debt burdens, weaken debt affordability and intensify external vulnerability risk.

In a report attributed to Low-rated sovereigns with large external repayments vulnerable to contagion shocks, Moody’s stated that low-rated emerging market sovereigns with large near-term international bond repayments and significant reliance on foreign currency, private-sector credit are particularly vulnerable to the impact of deteriorating economic conditions on capital markets.

"The coronavirus outbreak and sharp commodity price declines are triggering significant financial market volatility and risk aversion that few emerging market sovereigns are immune to," says Christian Fang, a Moody's Assistant Vice President and Analyst.

"Emerging market sovereigns that need to access international bond markets to refinance their foreign-currency debt or that borrow heavily from private sector lenders in foreign currency would currently face prohibitive conditions," Fang added.

The report further informed that Pakistan, along with Sri Lanka, and Egypt would see a marked weakening in debt metrics because of large gross borrowing needs that raise interest payments when borrowing costs rise, and/or narrow revenue bases that push fiscal deficits wider when interest payments rise.

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