KARACHI, May 21: Moody’s Investors Service on Wednesday lowered the Pakistan Government’s Bond Ratings to B2 from B1 due to growing economic imbalances amidst renewed political difficulties and substantial policy slippage.

A press release issued by the Moody’s said the Foreign Currency Bank Deposit Ceiling was also downgraded to B3.

This was second shock in a week for the rating on Pakistan. Standard & Poor’s last week also downgraded its ratings on both political and economic imbalances.

Moody’s said the outlook on the government’s bond ratings and bank deposit ceilings was changed to stable from negative.

The stable outlook reflects the prospect of external financial support from multilateral development banks and bilateral creditors that should bolster external liquidity and offer some policy manoeuvring room.

At the same time, Moody’s has changed the outlook on the Foreign Currency Country Ceiling of Ba3 to negative from stable.

The downgrading was not surprising for the market but it would certainly add to the difficult time for the economy.

Its impact would influence launching of GDRs (global depository receipts) and bonds in the international market, borrowing from commercial market and all other sources that may provide dollars to Pakistan. Analysts said it would also hurt the privatisation process.

“Substantial fiscal loosening and poor tax collection had led to a sharp erosion of the fiscal position in the run-up to the February elections, which had not been adequately corrected,” said Aninda Mitra, a Moody’s VP and its Senior Analyst for Pakistan.

Mitra added, “External assistance from bilateral donors and multilateral development banks could assist with a short-term boost to Pakistan’s current account and foreign exchange reserves as well as offer some budget support”.