ISLAMABAD (October 21 2003): Moody’s Investors Service has upgraded Pakistan’s country ceilings for long-term foreign currency debt and bank deposits to B2 from B3 to reflect the governments narrowing fiscal deficit, the repaid decline in government debt rations, and the ongoing strengthening of the country’s external position.
Accordingly, the rating on the Islamic Republic of Pakistan’s outstanding eurobond due in December 2005 has been raised to B2 from B3.
The outlook is stable across the ratings. B 2 is known as a mix of “obligations rated” (rating standard) where B is considered speculative and is subject to high credit risk and the modifier 2 indicates a mid-range ranking.
“This is very welcome development and the recognition of improvement in Pakistan economy. This will also positively impact debt servicing cost going forward”, said Finance Minister Shaukat Aziz, while talking to Business Recorder.
Earlier, Finance Minister had met Moody’s officials and conveyed to them the current position of country’s economy, during his recent visit of USA.
Moody’s explains that administrative and other tax reforms have combined with stranger growth to boost fiscal revenue, which, with falling almost in half and reinforced a virtuous fiscal cycle.
Robust export performance and large worker remittance have kept the current account in surplus and helped to bolster reserves, says Moody’s Official, reserves now provide enhanced coverage for external debt and debt service payments, the levels of which have continued to ease through debt restructuring and forgiveness by bilateral and multilateral creditors, programmed for the current fiscal year.
Although Pakistan’s closer ties with the US have reaped financial benefits such as debt forgiveness, Moody’s cautions that such relations are deeply unpopular among a large segment of the population.
The ability of the government to maintain political and economic control is dependent on the presence of the president, General Pervez Musharraf, says the rating agency.
In the future, these concerns and the omnipresent potential for a fresh outbreak of Pakistani-Indian hostilities are likely to restrain Pakistan’s upward ratings momentum in spite of the country’s healthy external liquidity.
Determinants of government bond ratings includes its economic and political structure, foreign currency earnings and market access, government bond rating, macroeconomic policy, country external liabilities, government fiscal position, public sector external liabilities and private sector external liabilities.
Moody’s on February 14, 2002 had upped its ratings for Pakistan’s external debt and bank deposits to B-3 from Caa1.
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