The Moody’s global qualification agency updated on Wednesday the Pakistan credit rating for a notch to Caa1 from Caa2, citing the improvement of Islamabad’s external position, and changed its positive to stable perspective.
Moody’s Ratings is a credit rating system that evaluates the solvency of borrowers, such as governments, corporations or financial instruments. According to its website, the agency uses card qualifications (AAA, AA, A, BAA, etc.) to indicate the probability of timely reimbursement, the highest quality and the lowest being AAA. These grades help investors evaluate the risk before loans or invest.
Within this scale, CAA1, CAA2 and CAA3 fall into the category of “CAA”, indicating a very high and poor position of credit. Caa1 is the highest within this group (slightly less risky), Caa2 is a lower and caa3 notch is the last one, which means the greatest vulnerability to non -compliance between the three.
“Moody’s Ratings (Moody’s) today has improved the local and foreign issuer of Pakistan of Pakistan and senior debt ratings not guaranteed to CAA1 from CAA2,” said the International Qualification Agency, one of the three main world -class signatures, in its statement today.
He cited the best external position of Islamabad and changed the perspective to Pakistan’s qualification to “positive”.
“We have also updated the rating of the Senior not guaranteed [medium-term note] Program A (P) CAA1 of (P) CAA2, ”he said.
“The update to CAA1 reflects the improvement of the external position of Pakistan, backed by its progress in the implementation of the reform under the program of the extended fund (EFF) of the Monetary Fund (EFF) of Pakistan,” said Moody’s.[InternationalMonTaryFund’SexTendedfacity(EF)program”Moody’Shighthed[InternationalMonetaryFund’sExtendedFundFacility(EFF)programme”Moody’shighlighted
“The CAA1 qualification also incorporates the weak governance of the country and the high political uncertainty,” said the agency.
“Currency reserves are likely to continue improving, although Pakistan will continue to depend on the timely financing of official partners,” he predicted.
Moody’s stressed that “Sovereign’s fiscal position is also strengthening from very weak levels, backed by an expanding tax base.” “Its affordability of the debt has improved, but it is still one of the weakest among the qualified sovereigns,” he said.
By expanding the “stable” perspective, the agency said it reflected “balanced risks for Pakistan’s credit profile.”
“On the positive side, the improvements in the burden of debt service and the external profile could be faster than we currently expect. In the inconvenience, there is risks of delays in the implementation of the reform required to ensure timely financing, which in turn would weaken the external position of Pakistan again,” he said.
“The update to CAA1 from the CAA2 rating also applies to the non -safe grades of foreign currency backed for the global Sukuk program of Pakistan CO LTD,” said Moody’s, and added that he also changed the perspective of the Sukuk program to stable positive.
“We have also raised the roofs of the local and foreign currency countries of Pakistan to B2 and CAA1 of B3 and Caa2, respectively,” added the agency.
He pointed out that the two notches gap between the local currency roof and the sovereign rating was “driven by the relatively large footprint of the government in the economy, weak institutions and the high risk of political and external vulnerability.”
The Minister of Finance, Muhammad Aurengzeb, already urged Moody’s in July to improve the current Caa2 credit qualification of Pakistan during a virtual participation in July.
Speaking in an event in Islamabad today, Aurengzeb said that international financial institutions had praised the economic reforms of Pakistan and said he had the hope of “the third agency”, an apparent reference to Moody’s, doing the same soon.
Pakistan has postponed the launch of international bonds since July 2021 due to the challenging macroeconomic conditions and the resulting poor credit rating, and depending mainly on time deposits of friendly nations to comply with external liabilities and stay afloat.
The agency had last improved the local and foreign currency issuer of Pakistan and the non -safe debt grades to CAA2 from CAA3 on August 28, 2024. He had also changed his perspective to stable positive to improve macroeconomic conditions.
At the end of February 2024, shortly after the general elections, Moody’s had preserved the long -term credit rating of Pakistan in Caa3, noting that “political risks are high, after a highly controversial general election.”
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