Moody’s Investors Service upgraded Pakistan’s foreign currency issuer and senior unsecured bond ratings to B3 from Caa1, with a stable outlook.
The rating for US dollar Trust Certificates issued by the Second Pakistan International Sukuk Company Limited was also raised to B3.
Additionally, Moody’s revised Pakistan’s foreign-currency bond ceiling to B2 from B3, the foreign-currency deposit ceiling to Caa1 from Caa2, and the local-currency country risk ceiling to Ba3 from B1. The short-term country ceilings for foreign-currency bonds and deposits remain at Not-Prime (NP).
The B3 rating implies that Pakistan still has a high credit risk but is now considered one step better than Caa1. The Caa rating levels (1, 2, and 3) suggest “poor quality and very high credit risk.”
On May 25, Moody’s improved Pakistan’s credit rating outlook to positive from stable, hinting at a possible upgrade for the first time since 2006 due to steady economic improvements.
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However, Moody’s maintained the non-investment-grade Caa1 foreign currency rating, indicating that further reforms, successful completion of the IMF program, or better financial conditions could lead to an upgrade.
Moreover, in their statement on Thursday, Moody’s attributed the upgrade to Pakistan’s strengthened external payments position and consistent progress in structural reforms under the government’s IMF program. This progress has reduced the risk of default relative to other countries rated Caa1, which are facing greater external vulnerabilities.
Moody’s highlighted several improvements behind the upgrade:
- Strengthening External Liquidity: Pakistan’s external liquidity position has continued to improve, with net foreign reserves rising to $11.9 billion by the end of May 2015 from a low of $3.2 billion in January 2014.
- Economic Growth: Moody’s projects real GDP growth to increase to 4.7% for the fiscal year ending June 2016 and to further rise to 5-6% annually over the next four years. Lower oil prices are also helping reduce pressure on the current account.
- IMF Program Reforms: Pakistan is making steady progress on structural reforms under the IMF program. The IMF confirmed the successful completion of its seventh review under the Extended Fund Facility, with cumulative financial assistance reaching $3.5 billion out of the $4.4 billion program.
