Credit ratings

 
August 10, 2020

Pakistan’s announcement that it would seek to participate in the G-20 ‘Debt Service Suspension Initiative’ raised questions that private sector creditors could be asked by the...

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Pakistan’s announcement that it would seek to participate in the G-20 ‘Debt Service Suspension Initiative’ raised questions that private sector creditors could be asked by the country to extend similar treatment to Pakistani debt. This has resulted in the New York based credit and financial risk assessment organization Moody’s confirming on Saturday that Pakistan’s B3 credit rating would be maintained. The decision by Moody’s to maintain Pakistan’s rating comes as good news for the country which has faced one financial crisis after the other.

One of Pakistan’s major problems is the return of debt. The review suggests that at this point Moody’s believes Pakistan is stable and has kept intact its economic position. Discussion on private sector involvement in the DSSI is continuing. There are indications by the G-20 that the DSSI would require the support of the borrowing government. Pakistan’s economic planners will be pleased at Moody’s decision. The statement by the agency however has made it clear that it will continue to watch the efforts of the government to seek debt relief and especially on whether the government will ask private creditors for debt relief as well at some point in the future. Economic analysts have forecast that this is a possibility. Moody’s view reflects its opinion that, while Pakistan has faced enormous pressure in the wake of the coronavirus economic shock and in other areas which impact the economy, it is likely to remain consistent with its current rating level. Moody’s warns that Pakistan may face risks because of the pandemic and the challenges it has created. This it states would mean strong support is needed from development partners coupled with effective macroeconomic policies which had been started ahead of the crisis.

Pakistan then has essentially been able to maintain a steady economy despite the risks and pressure it has faced. There had been apprehensions that Moody’s could lower Pakistan’s ratings in view of these challenges. The fact that it has not done so will give the economy some much-needed confidence. This may help boost investments and growth at a time when Islamabad is under pressure to overcome losses suffered in the recent past and tackle the economic problems it is continuing to face. We all know that these challenges are varied and widespread. In this situation the report indicating confidence granted by Moody’s will be warmly welcomed by the Pakistan government as well as the private corporate sector in the country.



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