Moody’s upgrades Pakistan’s bond rating


Analyst says Pakistani government has achieved significant traction in reforms

Moody’s has upgraded Pakistan’s dollar bonds’ rating one notch from stable to positive on the back of country’s improving macroeconomic indicators.

“Moody’s upgrades Pakistan’s foreign currency issuer and senior unsecured bond ratings to B3 from Caa1, and assigned a stable outlook” the Moody’s statement said.

Ratings firm said its decision came in view of Pakistan’s strengthening foreign exchange reserves and meaningful reduction in the deficit and debt burden.

It was the second time in 2015, when Moody’s upgraded its outlook on Pakistan. In May 2015, Moody’s had upgraded its outlook on Pakistan to positive from stable.

According the Bloomberg “With the program now at its mid-point, we consider that the government has achieved significant traction in reforms,” Moody’s analyst Anushka Shah wrote in a statement on Thursday. “Continued commitment to the program would entail, amongst other goals, the government meeting deficit-reduction targets.”

“This upgrade will get Pakistan bonds better offers at the international bond-sale” expected this year, Yawar Uz-Zaman, vice president for research at Shajar Capital Pakistan Pvt said.

The rating firm said the key drivers of ratings upgrade are the continued strengthening of Pakistan’s external payment position and sustained progress in structural reform under the IMF program.

The country’s net foreign reserves have jumped to $17.446 billion from a lowest position in January 2014, recently bolstered by successful privatization offerings.

Lower oil prices have also relieved pressure, the firm said.

Moody’s expect the GDP growth to clock in at 4.7 percent in fiscal year 2016 followed by 5-6 percent in the coming four years.

The rating firm said the promised $46 billion investment under the china Pakistan Economic corridor will also help in accelerating growth.

Government has achieved significant traction in reforms agreed with IMF, with the program now at its midpoint. This would result in government meeting deficit reduction targets and contribute towards a decline in gross financing need.

On the other hand, stalling of the ongoing IMF program or the withdrawal of other multilateral and bilateral support, deterioration in the external payments position or a more unstable political environment will be credit negative.

Pakistan issued $1 billion in five-year Sukuk Bonds, the Islamic version of eurobonds, in November last year to boost foreign exchange reserves.

In April 2014, the country issued $2 billion worth of eurobonds, in five and 10 year terms.

The International Monetary Fund (IMF) has voiced satisfaction with Pakistan’s progress on reforms required under a $6.6-billion bailout agreed in 2013.

The loan came on condition that Pakistan — which was suffering an energy crisis — would carry out extensive economic reforms, particularly in the energy and taxation sectors.

The State Bank of Pakistan on the weekend slashed its benchmark interest rates by 100 basis points point to eight percent.

The bank noted that the economy was now on a more stable footing and was benefiting from the drop in world oil prices, the analyst said.

On May 5, 2015, Standard and Poor’s ratings agency raised Pakistan’s credit rating to positive from stable but affirmed its B- rating, as the country experiences economic growth.