Moody's revises Pakistan's outlook to 'negative' on IMF aid delays

Credit rating agency affirms 'B3', or junk rating, for the country

A mango stall in Rawalpindi, Pakistan, last month. The country's economic outlook has been downgraded to negative by Moody's Investor Service. Bloomberg

Moody's Investors Service on Thursday revised Pakistan's outlook from "stable" to "negative", citing financial risks and uncertainty stemming from delays in securing assistance from the International Monetary Fund.

The credit rating agency's decision to change the outlook to negative is driven by Pakistan's heightened external vulnerability risk and uncertainty around the government's ability to secure additional external financing to meet its needs, it said in a statement on Thursday.

"Moody's assesses that Pakistan's external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and — already thin — foreign exchange reserves, especially in the context of heightened political and social risk," Moody's said.

"Pakistan's weak institutions and governance strength adds uncertainty around the future direction of macroeconomic policy, including whether the country will complete the current IMF Extended Fund Facility (EFF) programme and maintain a credible policy path that supports further financing."

The South Asian country is experiencing a rise in economic and financial risks amid the suspension of a $6 billion package agreed on with the IMF in 2019. Pakistan last week raised fuel prices by 20 per cent, part of efforts to resume receiving aid.

It left the credit assessment for the nation at B3, a junk rating.

Moody's also affirmed the B3, or junk rating, for the country, reflecting the agency's assumption that Pakistan will conclude the seventh review under the IMF EFF programme by the second half of this year, and will maintain its engagement with the IMF, leading to additional financing from other bilateral and multilateral partners, it said.

"In this case, Moody's assesses that Pakistan will be able to close its financing gap for the next couple of years," it said.

The B3 rating includes Moody's assessment of the scale of Pakistan's economy and robust growth potential, which will provide the economy with some capacity to absorb shocks, it said.

"These credit strengths are balanced against Pakistan's fragile external payments position, weak governance and very weak fiscal strength, including very weak debt affordability," Moody's said.