KARACHI (Dunya News) – Brimming with confidence after latest upgrade in Pakistan’s credit rating by international rating agency Moody’s, the Pakistan Stock Exchange (PSX) witnessed a positive trend after a hiatus which started from the start of the week followed by unrest in country.
The KSE-100 index reached 78, 387 points after gaining 394 points.
It must be noted that the KSE-100 index plummeted to 77,992 points after losing 91 points yesterday.
Pakistan's outlook 'positive' as Moody's upgrades rating to Caa2
Global credit rating agency Moody’s upgraded Pakistan’s local and foreign currency issuer and senior unsecured ratings to Caa2 from Caa3.
Moody’s, one of the three top global rating agencies, said in a statement “We have also upgraded the rating for the senior unsecured MTN programme to (P)Caa2 from (P)Caa3. Concurrently, the outlook for Government of Pakistan is changed to positive from stable.”
The upgrade reflects Pakistan’s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels.
“Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating,” it said.
Moody’s, which downgraded Pakistan’s rating in February 2023, said that “there is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the International Monetary Fund (IMF) on 12 July 2024 for a 37-monthExtended Fund Facility (EFF) of $7 billion.”
“We expect the IMF Board to approve the EFF in the next few weeks,” it said.
In its report, Moody’s noted that Pakistan’s foreign exchange reserves have about doubled since June 2023, although they remain below what is required to meet its external financing needs.
“The country remains reliant on timely financing from official partners to fully meet its external debt obligations,” it said. The agency said Pakistan’s Caa2 rating continues to reflect the country’s “very weak debt affordability, which drives high debt sustainability risk”.
“We expect interest payments to continue absorbing about half of government revenue over the two to three years.” The Caa2 rating also incorporates the country’s weak governance and high political uncertainty, it said.
On the other hand, the positive outlook reflects a balance of risks skewed to the upside. It captures the possibility that the government is able to further lower its government liquidity and external vulnerability risks, and achieve a better fiscal position than we currently expect, supported by the IMF programme, said the credit rating agency.
“Sustained reform implementation, including revenue-raising measures, can increase the government revenue base and improve Pakistan’s debt affordability,” it said.
Moreover, a record of completing IMF reviews on a timely manner would also allow Pakistan to continually unlock financing from official partners, sufficient to meet its external debt obligations and support further rebuilding of its foreign exchange reserves, it said.
Back in July, Pakistan and the IMF reached a staff-level agreement for a 37-month loan programme.
But the final approval will need to come from the IMF Executive Board after Pakistan secures “timely confirmation of necessary financing assurances from development and bilateral partners.” This includes rollovers or disbursements on loans from Pakistan’s long-time allies Saudi Arabia, the United Arab Emirates, and China.
Moody’s on Wednesday said the upgrade to Caa2 from Caa3 rating also applies to the backed foreign currency senior unsecured ratings for The Pakistan Global Sukuk Programme Co Ltd.
“The outlook for the Pakistan Global Sukuk Programme Co Ltd is positive,” it said.
“We have also raised Pakistan’s local and foreign currency country ceilings to B3 and Caa2 from Caa1 and Caa3, respectively.”