By Moody’s Upgrades Pakistan’s Credit Rating
On August 30, 2024, Moody’s Investors Service upgraded Pakistan’s long-term sovereign credit rating from Caa3 to Caa2 and revised its economic outlook from stable to positive. This upgrade follows a similar move by Fitch and reflects recent improvements in Pakistan’s macroeconomic conditions, including liquidity and external financial positions, bolstered by a new $7 billion bailout agreement with the IMF.
Current Rating and Economic Implications
Despite the upgrade, Pakistan’s rating remains in the “speculative grade” category, indicating persistent challenges. The country’s debt affordability remains low, with high debt sustainability risks. Nonetheless, the risk of default has decreased, although interest payments are expected to continue consuming about half of government revenues over the next two to three years.
Impact on Investment and Finance
The recent credit rating upgrades are expected to lower Pakistan’s country risk premium and boost investor confidence. The stock market reacted positively, as the rating improvement alleviated uncertainties around IMF loan approval delays. This upgrade will likely aid the government in returning to global bond markets and securing fresh funds for budgetary support, potentially negotiating better terms and lower interest rates for the $4 billion it plans to raise.
Challenges Ahead
Moody’s, like Fitch, cautioned about potential uncertainties. The agency expressed concerns about the government’s ability to sustain and implement necessary reforms, particularly revenue-raising measures, without causing social unrest. The coalition government formed after the February elections may struggle with a lack of strong electoral support, potentially leading to delays or withdrawal of financing from international partners.
Conclusion
While Pakistan’s economic situation has improved significantly from a year ago, the country still relies heavily on international support. The government must adhere to IMF reforms and maintain a steady implementation of financial measures to ensure continued access to external financing and support for its foreign exchange reserves.
