Moody’s upgrades Pakistan bond rating: Risks identified
By Our Staff Reporter
ISLAMABAD, Nov 22: Moody’s Investors Service on Wednesday upgraded Pakistan’s foreign and local currency government bond ratings to B1 from B2, but expressed "reservations concerning the deteriorating current account balance, persistent inflationary pressures and a relaxation of fiscal policy".
In a statement, the Moody’s said an additional rating constraint is the stubbornly low ratio of government revenue to GDP, which stems from an inadequate tax base. It added that these downside risks would still be well reflected by a B1 rating.The government immediately welcomed the improved rating. Dr Salman Shah, adviser to the prime minister on finance, said the rating recognised that economic and financial management of the country was moving in the right direction. "This will have positive impact on Pakistan’s floatings abroad including equity issues, global depository shares".
He said the time of the rating announcement would have a very good impact on the pricing of global depository shares of the Oil and Gas Development Company Limited (OGDCL), currently in the process of international offering at the London Stock Exchange.
The upgrade primarily reflects the ongoing decline in the country’s public and external debt ratios, largely the result of a significant structural increase in GDP growth in recent years coupled with a relatively restrained, albeit currently loosening, fiscal policy. The outlook on Pakistan’s government bond ratings is now stable.
Pakistan's country ceiling for foreign currency bonds remains at Ba3 and its country ceiling for foreign currency bank deposits stays at B2. Meanwhile, its country ceilings for local currency bonds and local currency bank deposits are unchanged at Baa2. All the ceilings maintain a stable outlook.
"Pakistan’s real sector has been enlivened by several years of structural reforms, including a restructuring of the banking sector, trade liberalisation and a programme of privatisation that has improved productivity and spurred foreign investment," said Tristan Cooper, a Moody's vice-president and senior analyst. Cooper also noted that, while some of Pakistan’s debt ratios remain higher than those of their rating peers (particularly government debt to revenue and external debt to current account receipts), the composition of Pakistan’s public and external debt is relatively benign.
The bulk of the country’s external debt is owed by the government to multilateral and bilateral creditors on concessional terms and only around a fifth of the government’s total debt stock (both external and domestic) is marketable. This limits liquidity risk and contains the debt servicing burden.
Responding to a question on stock market probe, Mr Shah said he was not in the picture but the Securities and Exchange Commission of Pakistan (SECP) must have started issuing notices to the brokers who were suspect of manipulating the market for personal gains.
