Moody’s, a global rating agency for economies, has further downgraded Pakistan’s revised rating.
Pakistan’s Downgrade in Moody’s Ranking
Moody’s has downgraded Pakistan’s sovereign credit rating from B3 to CAA1. Moody’s said the downgrade was due to flood-induced liquidity, external concerns, and persistent debt concerns.
According to Moody’s, due to the unavailability of market financing at an adequate cost, Pakistan will continue to depend on multilateral and official lenders to service its external debt. However, Pakistan’s outlook remains unchanged and remains negative. The global rating agency Moody’s had downgraded Pakistan’s outlook from stable to negative in June this year.
Now the question arises here, what does the reduction in rating mean?
What is the purpose of credit rating?
The purpose of credit rating agency ratings is to assess the risks to an economy and determine its rating based on that. Keeping this rating in mind, international financial institutions determine the marks for issuing loans to a country.
Through this rating, it is estimated whether the country that is being given a loan has the ability to take a loan or not, and if the rating of that country is low, then it is given a loan with strict conditions, while Better crates mean conditions will be relatively relaxed.
What could be the impact on Pakistan from a downgrade in Moody’s rating?
Moody’s said in its statement that after the floods, Pakistan’s liquidity and external debt defaults have increased and social spending has increased significantly, while government revenues have suffered severely. Credit availability and long-term credit fragility for Pakistan will remain very weak in the future.
The CAA One rating reflects Moody’s view that the absence of access to market financing at affordable rates makes Pakistan more dependent on financial support from multilateral partners and other government lenders to meet its debt repayments.
According to experts, due to the downgrade, Pakistan will have to face tougher conditions at the time of granting loans from international institutions.
