NEW YORK, Feb 6: Moody's Investors Service has assigned its B2 rating to the pending five-year Eurobond issue by Pakistan.
The rating is equivalent to Pakistan's B2 country ceiling for long-term foreign currency bonds and notes and to the Pakistani government's foreign and local currency issuer ratings, which were last upgraded in October 2003. The outlook on all of Pakistan's ratings is stable.
Moody's points out that the new issue represents the country's return to the international capital markets for the first time since it restructured all of its previous eurobonds and floating rate notes at the insistence of the Paris Club of bilateral creditors in December 1999.
Moody's states that a positive turnaround has taken place in the Pakistani economy over the past five years. Policymakers began to implement a comprehensive adjustment programme aimed at reversing the upward trajectory of public and external debt accumulation in order to escape a recurring cycle of balance of payments crises.
The effort comprised fiscal consolidation, banking sector and energy sector reform, the privatization of state-owned companies, poverty reduction, and the normalization of relations with multilateral institutions and bilateral creditors, which helped to secure a new IMF programme and another bilateral debt restructuring.
In December 1999, the government also rescheduled its three outstanding foreign currency bond and note issues. These securities, one issue of which was originally scheduled to mature that same month, were exchanged for new six-year notes carrying a three-year grace period.
Moody's underscores the fact that Pakistan's domestic growth has responded positively to macroeconomic reform and stabilization, and particularly to the improvement in its external liquidity provided by ample external assistance, faster export growth, and a healthy pickup in workers remittance inflows during the past two years.
Pakistan's traditional balance of payments constraint has been significantly alleviated as the current and capital accounts of the balance of payments shifted from deficit into surplus, with $10.5 billion in official foreign assets presently. Moody's has recognized the steady improvement in creditworthiness with upgrades of the government's long-term ratings in each of the last two years.
Moody's stresses that Pakistan's ratings are constrained by a number of structural factors, however, both economic and political. Public debt is still quite high and living standards are relatively low compared to other countries in the "B" rating category. Even after the debt relief obtained in recent years, interest payments and defence consume over half of government revenue, restricting the government's ability to redress persistent poverty and under-development.
S&P: Standard & Poor's Services on Friday assigned its 'B' long-term senior unsecured foreign currency debt rating to Pakistan's proposed issuance of $500 million fixed-rate bonds due 2009.
Standard & Poor's sovereign credit ratings on Pakistan are: foreign currency 'B/B' and local currency 'BB-/B'. The outlook is positive.
"The ratings on Pakistan are supported by its comfortable external liquidity, and progress made in economic stabilization," said Standard & Poor's credit analyst Chih Wai Liew of the Sovereign and International Public Finance Ratings Group.
Progress on the extensive structural reforms agenda is largely on track, although still incremental. This progress comes despite a lack of public support, a difficult external environment, and domestic political uncertainties.
"Since coming to power about 15 months ago, Prime Minister Jamali's coalition government has generally remained steadfast in practising prudent economic management," said Mr Liew.
Pakistan's economy outperformed expectations by registering real GDP growth of 5.8 per cent in the fiscal 2003 - the fastest since the fiscal 1992. The higher growth reflects cyclical factors, particularly favourable rainfall, and growing domestic confidence.
Inflation has declined to 3.1pc, the lowest in more than a decade, and external liquidity improved, with foreign exchange reserves exceeding $10bn since September 2003. -Reuters