Moody’s Investors Service, a global credit rating agency, has downgraded Pakistan’s rating to B3 from B2 amid a payment crisis. It has cited the country’s depleted foreign exchange reserves, weak fiscal position and a rising current account deficit as the reasons for the downgrade. The decision has raised concerns about Pakistan’s ability to meet its external obligations in the face of a currency crisis.
Moody’s Downgrades Pakistan’s Rating
Moody’s has downgraded Pakistan’s rating from B2 to B3 while maintaining a negative outlook. The downgrade reflects the country’s weakened external and fiscal positions, which have been exacerbated by the COVID-19 pandemic. The rating agency has pointed out that the country’s external pressures have intensified, with foreign exchange reserves at dangerously low levels, and a significant upcoming external debt service payment.
Moody’s has also highlighted concerns about Pakistan’s weak fiscal position. The country’s fiscal deficit has widened due to a fall in revenues, increased spending on health and social protection programs, and debt servicing costs. The agency forecasts that the deficit will remain high at 7.3% of GDP in the fiscal year 2021, which is well above the government’s target of 6.5%.
Amid Payment Crisis
Pakistan is currently facing a payment crisis due to a severe shortage of foreign exchange reserves. The country’s current account deficit has widened to $1.47 billion in August 2021, up from $316 million in the previous month. The rising deficit has put pressure on the exchange rate, which has depreciated by 11% against the US dollar since the start of the year.
The payment crisis has been exacerbated by the COVID-19 pandemic, which has hit Pakistan’s economy hard. The country has been facing a surge in cases, leading to lockdowns and reduced economic activity. As a result, Pakistan’s GDP growth rate has slowed down to 3.9% in fiscal year 2021 from 5.8% in the previous year.
In conclusion, Moody’s downgrade of Pakistan’s rating has highlighted the country’s weakened external and fiscal positions amid a payment crisis. The situation is particularly concerning given the upcoming external debt service payment and the country’s depleted foreign exchange reserves. The Pakistani government will need to take urgent action to address the crisis and restore investor confidence.