NEW YORK, Oct 20: Moody’s Investors Service on Monday raised its rating on Pakistan’s foreign currency debt, saying a narrowing budget gap places the government in a better position to manage the national debt.

Moody’s lifted Pakistan’s country ceiling for long-term foreign currency debt and bank deposits to B2, five notches below investment grade, from B3, citing also a rapid decline in government debt ratios.

“Administrative and other tax reforms have combined with stronger growth to boost fiscal revenues, which, with falling interest rates and expenditure control, have cut the fiscal deficit almost in half and reinforced a virtuous fiscal cycle,” Moody’s said in a release.

Robust export performance and large worker remittances have kept the current account in surplus and helped to bolster Pakistan’s reserves, Moody’s added.

The ability of the government to maintain political and economic control depends on the presence of President Gen Pervez Musharraf, the rating agency said. Restraining Pakistan’s credit quality, however, is the prospect of renewed hostilities with neighbouring India, Moody’s said.

As a close ally in the US’ “war on terror,” Pakistan has reaped enormous financial benefits, including debt forgiveness from the world’s largest economy.

But Moody’s cautioned that such relations were problematic, since they were deeply unpopular among a vast segment of the population.—Reuters