Moody's downgrades Pakistan rating to Caa1

Moody’s downgrades Pakistan rating to Caa1

On Thursday, Moody’s downgraded Pakistan’s credit rating by one point to Caa1 from B3, citing increased government liquidity and the risk of external vulnerabilities. After a major flood in the country earlier this year.

 

Floods caused by unusual monsoon rains and melting ice has flooded large areas of Pakistan and killed nearly 1,700 people, mostly women and children.Moody’s downgrades Pakistan rating to Caa1

 

Floods have also increased Pakistan’s external financial needs. Increase the risk of balance of payments crisis according to the rating of the rating agency

 

Moody’s views on Pakistan remain unchanged in the negative.

 

The decision to downgrade the rating to Caa1 was driven by increased government liquidity and exposure to external risks. and higher debt sustainability risks. After the devastating floods that hit the country since June 2022, flooding has worsened Pakistan’s liquidity and weakened its external and broad credit. increasing demand for social spending while government revenues are severely impacted,” it said in a statement. statement.

 

“The ability to pay off debt This is a long-standing credit weakness for Pakistan. will remain extremely weak in the near future.”

 

The Caa1 rating reflects Moody’s view that Pakistan continues to rely on financing from multilateral partners and other government creditors. to pay their debts Without access to market capitalization at a reasonable price

 

In particular, Moody’s expects Pakistan’s IMF Extended Fund Facility (EFF) to remain in force and provide a channel for financing from the IMF and other multilateral and bilateral partners. in the near term

 

Debt sustainability risk.

 

Moody’s expects the fiscal deficit to rise to 7-8% of GDP in fiscal 2023 from pre-flood estimates of 5-6% of GDP. Public finance pressures are likely to persist for a little while. how many years in the future This is because expenditures are still high due to new construction and social demands.

 

Moody’s estimates that interest payments will rise to about 50% in fiscal 2023 from 40% of government revenue in fiscal 2022, and remain stable over the next few years.”

 

It said a significant share of interest payments would further limit the government’s ability to pay off debt. At the same time, it meets the important social spending needs of the population.

 

Liquidity Risk and External Risk.

 

The rating agency said it expects Pakistan’s current account deficit to increase to 3.5-4.5pc of GDP next fiscal year. Moody’s downgrades Pakistan rating to Caa1

 

“While imports of many types of goods tended to decline in line with declining demand. Imports of food and other essentials such as medical supplies will increase. while export capacity will be affected.

 

in the morning The World Bank on Thursday forecast Pakistan’s economy to grow 2 percent for the 2022-2023 fiscal year, down 2 percent from previous estimates in April and June 2022.

 

in the agency report Global authorities have raised estimates for Pakistan to 3.2% for fiscal year 23-24-24.

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