Moody’s cuts Pakistan bond outlook to negative


* Credit ratings firm concerned about arrears on sovereign debts, missed repayments
* Any delays in assistance from offshore sources ‘will be damaging’


HONG KONG: Credit ratings firm Moody’s cut its ratings outlook for Pakistan’s government bonds to negative from stable because of the country’s depleting foreign currency reserves as economic reforms are hit by political mayhem.

Moody’s analyst Aninda Mitra said on Tuesday he was concerned about arrears on sovereign debt and missed repayments as Islamabad’s access to foreign exchange worsens.

Pakistan’s foreign currency reserves stood at $8.91 billion on September 13, barely enough to cover two months of imports at a time when alarming levels of current account and trade deficits could require emergency funding, analysts said.

The current account deficit is running well ahead of target. It widened to $2.57 billion in July and August – equivalent to about 1.6 percent of gross domestic product (GDP) and more than a quarter of the government’s full-year target of 6 percent of GDP.

“The outlook has been changed mainly due to the deteriorating economic and law-and-order situation of Pakistan,” said Muhammad Imran, head of research at First Capital Equities Ltd.

Moody’s action follows Standard & Poor’s (S&P) in June cutting its rating to B from B-plus. S&P has a negative outlook on its rating, meaning another downgrade is on the cards.

The country’s financial markets have taken a beating – the stock market which rallied for six years has slumped 35 percent since the beginning of the year and the rupee is off more than 21 percent since January, hovering at record lows.

Offshore sources: Analysts say the tensions between Pakistan and its largest donor, the United States, over US military strikes against militants on Pakistani territory are adding to concerns because of their possible impact on US foreign aid to the South Asian country.

Moody’s said any delays in receiving assistance from offshore sources, which have already contributed to Pakistan’s bleak external position, would be damaging.

“It remains unclear how Pakistan would rebuild its external liquidity in the medium-term, unless either considerably larger amounts of foreign assistance were disbursed, or foreign investor sentiment improved sharply,” Mitra said.

Moody’s also lowered the outlook on its B3 foreign currency bank deposit ceiling to negative, while the outlook on the Ba3 foreign currency bond ceiling remained negative. reuters

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