*In a major development on the economic front, Moody’s Investors Service(Moody’s) cited increased external vulnerabilities, and downgradedPakistan’s outlook to negative from stablelinkonThursday, while maintaining a B3 rating for local and foreign currencyissuer and senior unsecured debt.*
In its statement, Moody’s said the decision to change the outlook “isdriven by Pakistan’s heightened external vulnerability risk and uncertaintyaround the sovereign’s ability to secure additional external financing tomeet its needs”.
The development comes as Pakistan battles economic challenges on multiplefronts, including a current account deficit due to bulging imports thathave put pressure on foreign exchange reserves as well as the currency.
On the other hand, Pakistan has also been hit by rising inflation, whichreached 13.8% year-on-year in Maylink,with particularly high prices for food and energy items, which account forover 50% share of most households’ budgets.
The ratings agency said Pakistan’s external vulnerability risk has beenamplified by rising inflation, which puts downward pressure on the currentaccount, the currency and – already thin – foreign exchange reserves,especially in the context of heightened political and social risk.
Economic experts said Moody’s downgrade only add to the woes of the alreadybattered economy.
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“Moody’s often changes outlook before announcing changes in the ratings,suggesting that a change in the ratings is around the corner,” said aneconomic expert on the condition of anonymity.
“The overall impact of Moody’s downgrade is negative as the country riskhas increased, which means that the required rate of investment hasincreased,” said the expert.
The ratings agency maintained a B3 rating as Moody’s was of the view thatPakistan will conclude the seventh review under the IMF Extended FundFacility (EFF)linkbythe second half of this calendar year.
“After the programme revival, Moody’s may revert the outlook to stable,”said Saad Hashmey, Executive Director at BMA Capital, adding that thechange in outlook occurred due to continued uncertainty at the externalfront.