Moody’s retains Pak ratings at B3 with stable outlook

 SINGAPORE, Moody's Investors Service on Thursday has issued a new sovereign report on Pakistan that explains its reasoning for the B3 rating and stable outlook.

"Pakistan's B3 rating reflects the stabilization of economic and financial strength, albeit at low levels," says Aninda Mitra, Moody's sovereign analyst for Pakistan, in a report published in the official website of Moody’s.

"The country's growth downturn is bottoming out, its near-term external liquidity has improved, and macroeconomic imbalances are on the mend," says Mitra, noting that the government's stabilization measures and the strong trend in remittances from overseas Pakistanis were supporting these stabilizing trends.

"However, structural problems in the electricity sector and the worsening security environment pose notable risks."

"The ratings also reflect the entrenched nature of Pakistan's low savings, narrow tax revenues, and relatively weak external competitiveness," says Mitra, adding that, "although constitutional order is being restored, Pakistani politics remain fractious, which could complicate implementation of much needed structural, policy, and administrative reforms."

"The government has toughened its security response against religious extremists. Nonetheless, the fundamental unpredictability of Pakistani politics and uncertainty about the durability of medium-term growth subjects underlying sovereign creditworthiness to a high degree of event risk," writes Mitra.

Mitra also noted that the government had signed on to an aggressive package of reforms, and work is in progress to enhance the government's tax revenue base. Although such efforts contrast with the track record of previous administrations, if sustained progress is in fact achieved, they may constitute credit-supportive developments.

"The stable outlook reflects augmentation of the IMF program, which will alleviate external financing needs over the next 15 months and bridge near-term shortfalls in fiscal financing," says the analyst, noting further that, "even though confidence-sensitive foreign private investment may remain volatile, the stable outlook is also supported by recent improvements in monetary confidence and the stabilization of macroeconomic imbalances."