Karachi, October 07, 2022 (PPI-OT): Pakistan Strategy: Moody’s downgrades Pakistan’s rating

Moody’s, on Thursday, downgraded the Government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from B3 after seven years. The rating agency has also downgraded the rating for the senior unsecured Medium-Term Note (MTN) program to Caa1 from B3 while country’s outlook remains negative.

As per Moody’s, the decision to downgrade the ratings is driven by increased government liquidity, external vulnerability risks and higher debt sustainability risks in the aftermath of devastating floods that hit the country.

In another development, the World Bank (WB) has also trimmed country’s growth forecasts to 2% (from 4%) for FY23. The cut in this year’s growth outlook has largely been driven by disruption in agricultural production. At the same time, the WB projects next year’s growth at 3.2%, as the country gradually recovers from the floods.

SBP’s MPS committee is expected to meet on Monday to decide the monetary policy setting of the country for the next months. We expect the central bank to maintain status-quo in the upcoming MPS where the concerns related to floods in the country will likely dominate the policy rate decision on Monday.

With PkR continuing its recovery against US$, the market sentiments will likely remain positive in the short term. Consequently, the index performance will remain buoyant at least in the short term. However, with country’s import cover currently standing at about only 1.2x, the sustainability of market performance will remain contingent on flow of funds. The market currently trades at a forward multiple of 4.4x.