Global rating agency Moody’s on Monday upgraded the outlook of Pakistan’s economy to stable from negative.
In a report published by the agency on the progress of Pakistan’s economy, Moody’s said the country’s foreign exchange reserves had significantly improved and its current account deficit was also under control.
The report added that the issuance of euro bonds had given a support of $2 billion to Pakistan’s economy. Measures taken by the Pakistani government for economic reforms have also enhanced the country’s chances of receiving the next loan tranche from the International Monetary Fund (IMF).
Pakistan sovereign dollar bonds due in 2019 were half a point higher at 103.5-104.5 cents on the dollar for a yield of around 6.3 per cent. The bonds due in 2024 were also half a point higher at 104.75-105.75 for a yield of around 7.5 per cent.
Moody’s said the government’s issuer rating and senior unsecured rating remained at Caa1.
“The Moody’s decision to revise the outlook on Pakistan’s foreign currency rating is primarily based on a stabilisation in the country’s external liquidity position, supported by the government’s strong commitment to reforms under an ongoing programme with the International Monetary Fund,” the firm said.
Pakistan’s foreign exchange reserves increased to $9.0 billion by the end of June 2014 from a low of $2.9 billion in early February 2014. The country benefited from a new IMF programme, bilateral assistance and government deals that included the auctioning of 3G and 4G licences. A Eurobond sale in April also raised $2 billion.
Moody’s had previously given a negative outlook on Pakistan’s economy. On May 7, Moody’s Investors Service in its review on the ‘Credit Analysis on Government of Pakistan’ stated that Pakistan’s ‘Caa1’ government bond rating with a negative outlook reflected its “very low institutional and fiscal strength, its weakened external position and large government financing needs”.
In its latest report, the rating agency also noted that the country had managed to attract foreign investment on improved financial indicators and with a steady economic performance, there was the possibility of credit rating improvement.
Dar welcomes Moody’s bond upgrade to stable
Finance Minister Ishaq Dar hailed the move as the “fruits of reform.” Dar said the upgrade was a vote of faith in the government’s reform programme in a statement issued by the ministry.
“As a result of hard work, commitment and financial discipline introduced by the government, the world has changed its outlook towards Pakistan,” he said.
The IMF programme will disburse $6.7 billion over three years if the government institutes reforms. Those include privatising some loss-making state industries, closing some tax loopholes and reforming the country’s troubled energy sector.
Almost all wealthy Pakistanis, including most legislators, pay extremely small amounts of tax. Recent initiatives to increase tax collection have disproportionately hit poor Pakistanis. Daily blackouts are crippling the economy leading to widespread unemployment and unrest.
Reform will be difficult, Moody’s acknowledged, but “a stalling of the ongoing IMF programme, a deterioration in the external payments position or a worsening political environment would be viewed as credit negative.”
Eleven out of 12 IMF programmes since 1998 have been scrapped or abandoned because Pakistan failed to institute reforms.