Moody’s Investors Service – one of top three global credit rating agencies – has put Pakistan under watch for possible downgrade of its long-term local and foreign credit ratings.
The ratings agency suspects that Pakistan may default on debt repayments to “private sector creditors” due to economic mess under the coronavirus pandemic.
“Moody’s has placed the government of Pakistan’s local and foreign currency long-term issuer and senior unsecured B3 rating under review for downgrade,” the US-based rating agency announced on Thursday.
“Consistent with Moody’s approach globally, the review period will allow the rating agency to assess whether Pakistan … would likely entail default on private sector debt,” it said. The rating agency, however, did not mention the duration of the review period, as to how long it would monitor Islamabad’s debt repayment activities and when it would announce its final decision regarding downgrade.
Moody’s alert may turn the rupee-dollar exchange rate volatile and may increase cost of new foreign borrowing for the country in international markets, an analyst said.
Moody’s said Pakistan had improved its economic indicators well before the outbreak of Covid-19 late in March and was still capable of continuing to pay off the debt on time.
However, the possible deterioration in the country’s current account deficit, likely depletion in its foreign currency reserves and low tax and non-tax revenue collections due to limited economic activities and anticipated contraction in the domestic economy may weaken the government’s ability to continue paying off the debt on time, going forward, the agency said.
