Tag: credit rating

  • Moody’s cautions on Pakistan’s fiscal challenges despite recent stability

    Moody’s cautions on Pakistan’s fiscal challenges despite recent stability

    Moody’s Investors Service, a global credit rating agency, stated on Tuesday that Pakistan’s credit rating could see an upgrade if the government successfully reduces liquidity and external vulnerability risks.

    Despite this potential, Moody’s maintained Pakistan’s credit rating at ‘Caa3’ for long-term issuer rating with a stable outlook in its periodic review.

    The credit profile of Pakistan reflects significant liquidity and external vulnerability risks, attributed to low foreign exchange reserves insufficient to meet high external financing needs in the near to medium term, according to Moody’s.

    The agency also highlighted the country’s very weak fiscal strength and elevated political risks as constraints on its credit profile.

    Moody’s expressed uncertainty regarding the new government’s ability to swiftly negotiate a new International Monetary Fund (IMF) programme after the ongoing programme concludes in April.

    While acknowledging Pakistan’s large economy and moderate growth potential, the agency emphasized the nation’s high liquidity and external vulnerability risks, despite economic stability maintained by the caretaker government and recent reforms.

    The agency recognised the government’s efforts to unlock financing from the IMF and other partners, resulting in a modest accumulation of foreign exchange reserves.

    However, it cautioned that, despite meeting external debt obligations for the fiscal year ending June 2024, there is limited visibility on sources of financing to address high external financing needs post-the current IMF stand-by arrangement.

    Moody’s rationale for the stable outlook at the Caa3 rating level is based on the assessment that pressures on Pakistan align with this rating, with broadly balanced risks.

    The agency suggested that continued IMF engagement beyond the current programme could attract additional financing from other partners, reducing default risk.

    Nonetheless, it emphasised the substantial external financing required and low reserve position, indicating potential default risks with funding delays.

    Moody’s indicated that an upgrade in Pakistan’s rating could occur with a substantial and sustained reduction in liquidity and external vulnerability risks, coupled with increased foreign exchange reserves and fiscal consolidation.

    Conversely, a downgrade might be likely if Pakistan defaults on debt obligations with significant losses to creditors.

    The agency expressed uncertainty regarding the new government’s ability to negotiate a new IMF programme swiftly after the ongoing one expires in April, citing high political risks following the controversial general elections held on February 8, 2024.

    Moody’s warned that without a new programme, Pakistan’s ability to secure loans from other partners would be severely constrained.

  • Pakistan’s credit rating maintained by Fitch at ‘CCC’ amidst financing challenges

    Pakistan’s credit rating maintained by Fitch at ‘CCC’ amidst financing challenges

    Fitch Ratings, a US-based credit rating agency, has maintained Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CCC,’ according to a statement released on Wednesday.

    The ‘CCC’ rating indicates significant external funding risks due to elevated medium-term financing requirements, notwithstanding some stabilisation and Pakistan’s commendable performance on its current standby arrangement (SBA) with the International Monetary Fund (IMF), as explained by Fitch.

    While anticipating scheduled elections in February and prompt negotiation for a subsequent IMF programme after the SBA concludes in March 2024, Fitch cautioned about potential delays and uncertainties regarding Pakistan’s ability to achieve this.

    Fitch emphasised the potential vulnerability of recent reforms and the prospect of renewed political volatility in the wake of the upcoming elections. Regarding the ongoing IMF programme, Fitch expressed confidence in the unproblematic approval of the recent staff-level agreement (SLA) by the IMF board.

    Fitch’s assessment highlighted the positive outcomes of the programme review, including sustained fiscal consolidation, energy price reforms despite public backlash, and strides towards adopting a more market-driven exchange rate regime.

    However, Fitch also pointed out risks associated with policy implementation, citing a historical pattern of parties across the political spectrum in Pakistan failing to implement or reversing reforms agreed upon with the IMF.

  • US could default by next month unless debt ceiling is raised

    US could default by next month unless debt ceiling is raised

    Janet Yellen, the United States Treasury Secretary, has written to Republican House Speaker Kevin McCarthy, warning that the federal government may exceed its spending limit by June 1 if Congress does not raise the debt ceiling. Yellen’s letter, which was published on Monday, noted that available data suggests that the government will no longer be able to cover its expenses in early June if Congress does not raise the limit before then.

    Yellen emphasised the importance of Congress taking action to increase or suspend the debt limit as soon as possible, to ensure that the government can continue to make its payments. While Yellen’s letter indicates the US could enter default as early as June 1, she also noted that it is impossible to predict the exact date when Treasury will be unable to pay the government’s bills.

    The potential for a default has raised concerns among experts about its possible impact on the US economy. It could lead to a fall in the US credit rating, resulting in higher interest rates and a possible recession. The process of raising the US spending limits is typically routine, but it has become increasingly contentious in recent years. Republicans in Congress are pushing for steep cuts to social programs in exchange for their support to raise the debt ceiling this year. In contrast, the Biden administration has called for an increase to the debt ceiling without conditions, stating that debates over various programs can be hashed out during negotiations on the yearly budget.

    Last week, the Republican-led House of Representatives passed a bill that agreed to raise the debt ceiling by $1.5 trillion in exchange for $4.5 trillion in spending cuts for programs like healthcare for low-income communities, renewable energy and transportation. The bill is considered dead on arrival in the Democrat-controlled US Senate, and Biden has stated that he would veto it. However, its passage in the House is considered a victory for McCarthy, who has since called for Democrats to approve the bill and avoid a default.

    Democrats have called for a “clean” debt limit increase without haggling or addendums. Virginia Senator Mark Warner tweeted on Monday that the US has about a month until it defaults on paying its debt and emphasised that this is not new spending, but about paying bills already incurred. On May 9, US President Joe Biden reportedly called for a meeting with Democratic and Republican leaders to discuss spending and the debt limit. The Congressional Budget Office has also stated that it sees an increased risk of the government running out of funds by early June due to tax receipts that were lower than expected.

  • ‘Nothing to worry about’: Dar dismisses concerns raised by Moody’s downgrading Pakistan

    ‘Nothing to worry about’: Dar dismisses concerns raised by Moody’s downgrading Pakistan

    After Moody’s Investors Service downgraded Pakistan’s sovereign credit rating on Friday, Finance Minister Ishaq Dar dismissed worries, stating there is ‘nothing to worry about’.

    “There is nothing to be worried about, I spoke with Moody’s yesterday and told them that they shouldn’t have done this. They should have consulted with us,” said Dar while talking to the media.

    The announcement follows Moody’s Investors Service’s (Moody’s) Thursday night downgrading the government of Pakistan’s senior unsecured debt rating from B3 to Caa1 for both local and foreign currency issuers.

    According to Express Tribune, the senior unsecured MTN program’s rating was similarly reduced by Moody’s, moving from (P) B3 to (P) Caa1. The future remains bleak.

    In the wake of the terrible floods that have struck the nation since June 2022, the rating agency said that the decision to lower the ratings to Caa1 was motivated by greater government liquidity, external vulnerability risks, and higher debt sustainability risks.

    The floods have significantly increased the need for social spending, compounded Pakistan’s problems with liquidity and external credit, and negatively impacted government revenue.

    According to the rating agency, Pakistan’s long-standing credit weakness of extremely weak debt affordability would continue for the foreseeable future.

    However, the Ministry of Finance vehemently contested Moody’s rating decision in its reaction. “The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” a statement issued by the ministry said.

    “Following Moody’s intimation of the rating action, the ministry held two meetings with the agency’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action.

    “After a regular stock take of the economic and fiscal conditions, the Ministry of Finance informed that government policies over the last few months have helped in fiscal consolidation,” the ministry added.

    “The government had adequate liquidity and financing arrangements to meet its external liabilities.”

    Dar said that Fitch Ratings recently downgraded the UK from stable to negative. “The ratings from these agencies is essential for issuing bonds and Sukuks in the international market,” he said. He claimed that he informed Moody’s that if the organisation did not change its mind, he would provide a “befitting” response at his meeting with its representatives set for next week.

    “They (Moody’s officials) have to meet me. I told them if you don’t [reverse] this, I will give you a befitting response in our meeting next week,” he said.