KARACHI: Pakistan’s B3 issuer rating is a sign of strengthening economic growth and progress on structural reforms against a relatively high government debt burden and political risks, the credit ratings agency Moody’s Investors Service said on Wednesday.

The agency made this assessment in its just-released Credit Analysis ‘Government of Pakistan — B3 Stable’, which looks at the country’s credit profile in terms of economic strength (assessed as “moderate”); institutional strength (“very low “); fiscal strength (“very low (minus)”); and susceptibility to event risk (“high”).

These represent the four main analytic factors in Moody’s sovereign bond ratings methodology.

Pakistan’s “Moderate” economic strength encompasses the sovereign’s very low per-capita incomes and the large size of its economy.

Economic output has picked up over recent years and is now rising at a relatively healthy pace. GDP growth has edged up to average 4.1 per cent year-on-year since FY14, from 3.4pc between FY10 and FY13, the credit ratings agency said in an announcement.


Says the country’s moderately large debt burden and weak revenue base shows lower debt affordability


The implementation of the China-Pakistan Economic Corridor and energy sector reforms will likely spur economy and improve the operating environment for investment, it said.

Moody’s assessment of institutional strength as “very low” reflects Pakistan’s weak but improving rankings on governance survey indices, specifically the World Bank’s Worldwide Governance Indicators.

It also takes into account the State Bank of Pakistan’s management of inflation and monetary policy, and progress on reforms under the ongoing International Monetary Fund programme.

Moody’s “very low (minus)” assessment of Pakistan’s fiscal strength reflects the country’s moderately large debt burden and weak revenue base, which lower debt affordability relative to peers.

“Efforts to reduce the fiscal deficit are proceeding, although at a gradual pace. As a net oil importer, Pakistan is a beneficiary of the currently low oil prices, Moody’s said.

The share of foreign currency debt to total general government debt has considerably declined in the last five years. But such borrowing still comprises about a third of total public debt, leaving government finances exposed in the event of exchange rate depreciation or financial market volatility.

The falling exports coupled with a moderation in remittance growth have resulted in the current account deficit remaining largely unchanged over the past year.

The authorities continue to rely on bilateral and multilateral sources to finance the government’s external financing needs.

Moody’s assessment of Pakistan’s vulnerability to event risks as “high” is driven by political risks, both domestic and geopolitical.

The government’s relatively large annual borrowing needs, particularly because of large rollover requirements, are also a constraint. However, recent efforts to lengthen the maturities of domestic debt will likely contain these risks in the future.

“At the same time, modest external financing needs limit external vulnerability risks,” Moody’s said.

Published in Dawn, April 28th, 2016

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