Moody downgrades Pakistan rating to Caa1 from B3

By Shahid Abbasi Jul 13th, 2012 ( No Comment )

Karachi: Moody’s Investor Service Friday downgraded Pakistan’s sovereign credit rating on rising pressure on macro-economic indicators particularly its external payment position and heavy debts of IMF.

Pakistan’s foreign and local currency bond rating downgraded to Caa1 from B3. The outlook for the rating is negative. A sovereign with a Caa rating is judged to be of poor standing and subject to very high credit risk.

“A combination of factors would prompt Moody’s to consider a further downgrade. These include a substantial worsening of the domestic political environment and significant further deterioration in the policy framework and investor confidence,” Moody’s said in a press release.

The country’s current account deficit widened to $3.8 billion, whereas its trade deficit reached to $21.27 billion by end of current financial year.

The weak government finances, structural inflationary pressures and domestic political uncertainties are adding to Pakistan’s external vulnerabilities and debt sustainability, thereby compounding the downward pressure on sovereign creditworthiness,” it said.

Moody’s said the downgrade was also prompted by an upcoming repayment of $7.5 billion to the International Monetary Fund. The principle and interest are due in 2012, 2013, 2014 and 2015.

The country’s dwindling level of official foreign-exchange reserves has also raised the probability of a default over the next year or two, Moody’s added.