Moody’s cuts Pakistan rating as forex pile falls

HONG KONG: Pakistan’s credit rating was cut on Tuesday by one level to B3 by Moody’s Investors Service, which warned of further cuts given the depletion of the country’s foreign exchange reserves.

Moody’s retained a negative outlook which it had imposed last month after Pakistan’s rapidly deteriorating external liquidity position accompanied a stalling of economic reforms and mayhem in its domestic politics.

Aninda Mitra, Moody’s sovereign analyst for Pakistan, said recent policy moves were not sufficient to stanch the decline in its foreign currency pile, which was further hastened by delays in assistance from key bilateral and multilateral creditors.

“The failure to obtain timely assistance from Saudi Arabia, China, the US and other friends, and delays in disbursements from the World Bank, have eroded investor confidence and resulted in a substantial drawdown of Pakistan’s foreign currency reserves,” he said.

Traders said the markets had already priced in Tuesday’s downgrade and any further reduction from Moody’s.

Earlier this month, rival rating agency Standard & Poor’s Ratings Services cut Pakistan’s rating to CCC-plus, one notch below Moody’s. S&P has retained the negative outlook.

Fitch Ratings does not have a rating on Pakistan.

Pakistan’s five-year credit default swaps (CDS) — insurance-like contracts that protect against defaults and restructuring — were quoted at more than 50 percent upfront, a trader said.

That means the protection seeker has to pay $5 million to the insurer before signing the contract for every $10 million of principal that has to be insured. It is equivalent to a CDS level of 5,000 basis points (bps), the trader said. The rupee and stocks were flat following the ratings downgrade.

The News, 29/10/2008

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