KARACHI: Moody’s Investors Service on Monday revised the outlook on Pakistan’s foreign currency government bond rating to ‘stable’ from ‘negative’. The rating is affirmed at ‘Caa1’.

Concurrently, Moody’s has affirmed the government’s issuer rating and senior unsecured rating at Caa1.

Moody’s decision to revise the outlook on Pakistan’s foreign currency rating is primarily based on ‘stabilisation in the country’s external liquidity position’.

This is supported by the government’s strong commitment to reforms under an ongoing programme with the International Monetary Fund (IMF).

In a statement, Finance Minister Ishaq Dar appreciated and welcomed revision of Pakistan’s foreign currency government bonds rating from negative to stable.

“As a result of hard work, commitment and financial discipline introduced by the government, the world has changed its outlook towards Pakistan,” the minister opined.

He said that with the oversubscription of Eurobond, successful auction of 3G/4G spectrum licences, divestment of GOP shares, tax and energy sector reforms and improved economic indicators, the international confidence in Pakistan has increased to a level where it can build stronger economic base.

The investors at the Karachi stock market also greeted the news with enthusiasm. The news provided a powerful trigger to the benchmark index, which surged by 387.01 points or 1.32pc, recovering all of the loss of 302 points or 1.02pc that the benchmark had suffered in previous six successive sessions.

Ceiling remains unchanged

Meanwhile, Pakistan’s country ceilings remain unchanged.

The long-term, local-currency bond and deposit country ceiling is affirmed at B1, while the long-term foreign currency bond and deposit ceilings are affirmed at B3 and Caa2 respectively, said a report issued by the Moody’s. All short-term ceilings are also affirmed at Not Prime, it said.

A key factor behind Moody’s one-notch downgrade and outlook revision for Pakistan in July 2012 was deterioration in the external liquidity position. This situation has reversed over the past year: the current-account deficit is modest, estimated at 1 per cent of GDP for the fiscal year ended June 2014, while financial inflows have increased due to a $2 billion Eurobond sale earlier this year, privatisation proceeds, and multilateral and bilateral funding, said the report.

“Importantly, repayments to the IMF from the previously suspended programme are tapering off, even as disbursements from the ongoing programme continue,” said Moody’s.

Steady progress

Despite, a weak track record with previous programmes, Pakistan is making steady progress in meeting reform benchmarks under the current, 36-month $6.8bn Extended Fund Facility with the IMF, which it signed in September 2013, said the report.

So far, Pakistan has cleared three programme reviews, most recently at the end of June, and received $2.2bn of financial assistance.

The government has met 10 of 17 structural benchmarks, and appears to be on track towards achieving the remainder.

Broadly, these goals include tax and energy sector reforms, as well as efforts to privatise state-owned enterprises, said the report adding that the reform implementation may be challenging. Nonetheless, we think the authorities will persevere to achieve the overall intent of the package, it said.

Upward triggers to the rating would stem from the successful completion of the IMF programme, further improvements in the external liquidity position, continued fiscal consolidation, and progress on structural reforms which would remove infrastructure impediments and supply-side bottlenecks – eventually will be aiding a shift to a higher growth trajectory, said Moody’s report.

It further said that the domestic political stability and steady relations with international donors would further support the rating. Conversely, a stalling of the ongoing IMF programme, deterioration in the external payments position or a worsening political environment would be viewed as credit negative.

Published in Dawn, July 15h, 2014