ISLAMABAD: Moody’s on Saturday confirmed Pakistan’s B3 credit rating with a stable outlook as part of the review for downgrade, the agency said in a statement.

Concurrently, the agency has also confirmed the B3 foreign currency senior unsecured ratings for The Third Pakistan International Sukuk Co Ltd, according to press statement received here which added that the associated payment obligations are, in Moody’s view, direct obligations of the government of Pakistan.

The review for downgrade was triggered by Pakistan’s announcement that it would seek to participate in the G20 Debt Service Suspension Initiative (DSSI), which raised questions that private sector creditors would be asked by the country to extend similar treatment to Pakistani debt.

“While Moody’s continues to believe that the ongoing implementation of DSSI poses risks to private creditors, the decision to conclude the review and confirm the rating reflects its assessment that, at this stage, for Pakistan, those are adequately reflected in the current B3 rating” the statement said.

The agency said it remained unclear what influence is being applied to Pakistan and to other participating sovereigns to treat private creditors in a comparable manner to official sector creditors.

“However, a number of elements suggest that the probability of broad-ranging private sector involvement has diminished” the rating agency said in its statement.

“These include the apparent absence of progress in discussions about how private sector involvement (PSI) would be effected in DSSI in general; indications by the G20 that PSI would require the support of the borrowing government; the government of Pakistan’s continued assertion that PSI is not contemplated; and evidence of some debt payments being made to private sector creditors under a DSSI regime” the statement continued.

“The risks that remain relate to the possibility that in particular cases, DSSI is implemented with private sector creditors also being drawn in to provide debt service relief and incurring losses in doing so.”

The statement made it clear that the ratings agency is closely watching the actions of the government in its effort to seek debt relief, with particular emphasis on whether or not the government will ask private creditors for debt relief as well at some point in the future.

“The stable outlook reflects Moody’s view that the pressures Pakistan faces in the wake of the coronavirus shock and prospects for its credit metrics in general are likely to remain consistent with the current rating level” the statement said.

“In particular, while Moody’s sees downside risks to Pakistan’s economy because of movement and activity restrictions related to the pandemic, which would in turn intensify the government’s fiscal challenges, strong support from development partners including for external financing, coupled with effective macroeconomic policies started ahead of the crisis, contain external vulnerability and liquidity risks” it continued.

Pakistan’s Ba3 local currency bond and deposit ceilings remain unchanged. The B2 foreign currency bond ceiling and the Caa1 foreign currency deposit ceiling were also held steady.

The short-term foreign currency bond and deposit ceilings remain unchanged at Not-Prime. These ceilings act as a cap on the ratings that can be assigned to the obligations of other entities domiciled in the country, the statement added.

Published in Dawn, August 9th, 2020