External pressures continue to weigh on the country's foreign-exchange reserve adequacy, while political and government liquidity risks remain elevated in Pakistan, says Moody's Investors Service (Moody's). Moody's in its latest announcement of periodic review of Pakistan stated that its reviews all of its ratings periodically in accordance with regulations - either annually or in the case of governments and certain EU-based supranational organizations semi-annually.
The credit profile of Pakistan (issuer rating B3) reflects the country's "Moderate (+)" economic strength, which is underpinned by the relatively robust GDP growth potential and large scale of the economy, limited by very low per capita incomes and global competitiveness, its "Very Low (+)" institutional strength that takes into account very weak scores in the Worldwide Governance Indicators, although greater central bank autonomy has increased monetary policy effectiveness; the government's "Very Low (-)" fiscal strength owing to its very narrow revenue base which hinders debt affordability, reduces fiscal flexibility and increases the debt burden given ongoing infrastructure spending needs and rising interest expense; and "High" susceptibility to event risk driven by heightened external vulnerability, as external pressures continue to weigh on the country's foreign-exchange reserve adequacy, while political and government liquidity risks remain elevated in Pakistan.
Moody's further states that this periodic review is unrelated to the requirement to specify calendar dates on which the EU and certain other sovereign and sub-sovereign rating actions may take place. Moody's conducts these periodic reviews through portfolio reviews in which Moody's reassesses the appropriateness of each outstanding rating in the context of the relevant principal methodology(ies), recent developments, and a comparison of the financial and operating profile to similarly rated peers.
Moody's has now completed the periodic review of a group of issuers that includes Pakistan and may include related ratings. The review did not involve a rating committee, and this publication does not announce a credit rating action and is not an indication of whether or not a credit rating action is likely in the near future; credit ratings and/or outlook status cannot be changed in a portfolio review and hence are not impacted by this announcement.
This document summarizes Moody's view as of the publication date and will not be updated until the next periodic review announcement, which will incorporate material changes in credit circumstances (if any) during the intervening period. This publication does not announce a credit rating action.
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