KARACHI: Moody’s, one of the three global credit rating agencies, has changed Pakistan’s credit rating outlook to positive from negative, saying it will further improve in foreign currency inflows into the country.
The announcement pushed Pakistan’s stock market above 40,000 points in intraday trade after a gap of 10 months. The Pakistan Stock Exchange’s (PSX) benchmark KSE 100 Index was up 838 points to 40,126 points on Monday.
Moody’s also affirmed the government of Pakistan’s local and foreign currency long-term issuer and senior unsecured debt ratings at B3.
“The change in outlook to stable is driven by Moody’s expectations that the balance of payments dynamics will continue to improve, supported by policy adjustments and currency flexibility,” read a Moody’s report released on Monday.
“Such developments reduce external vulnerability risks, although foreign exchange reserve buffers remain low and will take time to rebuild.”
Moody’s said the recent currency depreciation has pushed up Pakistan’s debt level and weakened Islamabad’s fiscal strength.
However, the credit agency said that “the ongoing fiscal reforms, including through the country’s International Monetary Fund (IMF) programme, will mitigate risks related to debt sustainability and government liquidity.”
“The rating affirmation reflects Pakistan’s relatively large economy and robust long-term growth potential, coupled with ongoing institutional enhancements that raise policy credibility and effectiveness, albeit from a low starting point,” read the report.
“Moody’s expects Pakistan’s current account deficit to continue narrowing in the current and next fiscal year (ending June of each year), averaging around 2.2% of GDP, from more than 6% in fiscal 2018 (the year ending June 2018) and around 5% in fiscal 2019.