Moody’s assigns B3 definitive rating to Pakistan’s global bond offering

KARACHI: Moody’s Investors Service has assigned a definitive rating of B3, with a stable outlook, to the government of Pakistan’s announced global bond offering, a stamen said.
“Moody’s definitive ratings for these debt obligations confirm the provisional ratings assigned on 18 September 2015,” the rating agency said late on Friday.
It said the country’s B3 issuer rating reflects moderate economic strength with a supply-constrained economy that has been resistant to structural change.
“Although the scale of the economy is relatively large, globally, Pakistan's per-capita income level is relatively very low. Implementation of the China-Pakistan Economic Corridor will, over time, bolster growth through investment in transportation and power generation infrastructure,” it added.
Moody’s said the institutional effectiveness has been hampered by factious relations between the executive, military and judicial branches of government. “These drawbacks have constrained policy effectiveness… the government has gained significant traction on reforms under the IMF (International Monetary Fund) program, key goals of which include deficit reduction, resolving constraints in the energy sector, and the privatisation of several state-owned enterprises,” it said.
The agency further said other factors that drive Pakistan’s sovereign credit rating are its very low fiscal strength and high susceptibility to event risk. “Key fiscal and external credit metrics are weak intrinsically and relative to ratings peers. These methodological factors are compounded by the country’s narrow tax base, low savings and shallow capital markets -- all of which hinder stable domestic financing of sizable budget deficits,” it said.
“… the government is striving to lengthen the maturity of debt which will reduce gross financing needs. Government debt rollover risk is also reduced by sizeable recourse to domestic bank lending and, to some degree, by a debt structure which consists of long-tenor credits from multilateral and official bilateral creditors.”
It said the challenging operating environment, susceptibility to economic risks and political shocks, coupled with a high concentration to the sovereign, links the health of the banking system very closely to that of the government. Banks are well managed but remain vulnerable to cyclical economic risks and to political shocks.
Moody’s said deeply entrenched weaknesses in the power sector also acts as a bottleneck to growth.
It said while Pakistan’s government financing is mainly from domestic sources and system-wide external debt is declining as a percent to GDP, the level of external public debt poses a moderate degree of credit risk.