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ISLAMABAD: The Finance Ministry on Thursday strongly contested the Moody’s rating action, which it said was carried out unilaterally without prior consultations and meetings with its teams and State Bank of Pakistan (SBP).

According to a press statement issued by the ministry, Moody’s has released the revised rating for Pakistan in which it has downgraded the sovereign credit rating from B3 to Caa1.

“The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” the statement said.

Following Moody’s intimation of the rating action, the ministry held two meetings with the Moody’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action. After a regular stock take of the economic and fiscal conditions, Ministry of Finance informed that government policies over the last few months have helped in fiscal consolidation. It said, the government had adequate liquidity and financing arrangements to meet its external liabilities.

Pakistan was currently under the IMF Programme, the continuity of which was based on the confirmation and confidence in country’s ability to maintain the fiscal discipline, debt sustainability and its ability to discharge all its domestic and external liabilities.

IMF programme revival credit positive, but challenges remain, says Moody’s

The country remains committed to the agreements reached under IMF programme, it added. Moody’s “worsening near- and medium-term economic outlook” does not depict the correct picture due to gaps in information available with Moody’s and its use of estimations is not grounded in fundamentals. As such, the estimate of economic cost of the floods at

$30 billion is premature as the data is still being compiled in collaboration with World Bank and other partners, to ensure transparency and accuracy, and will be available once the figures are firmed up.

Thus, the impact on GDP growth rate cannot be fully and accurately assessed at this time and so Moody’s downward revision of GDP growth rate at 0-1% has no solid basis. Similarly, translating economic losses into fiscal deficit is contested.

On the expenditure front, government will largely be involved in public infrastructure rebuilding, and that too, over a number of years. The uptick in urgent current expenditure is being met through re-allocations and re-appropriations of budgeted funds thus mitigating the risk of rising deficit.

On the revenue front, the increase in nominal GDP is likely to compensate for any dip in revenues. During recent meetings with multilaterals, the government has received additional funding commitments from ADB of over US$ 2.5 billion. Similarly, World Bank has also pledged additional funding of around US$ 1.3 billion for infrastructure and other projects in the current financial year. These are in addition to Ministry’s financing plan at the start of the financial year.

On the appeal of UN Secretary General, funds to the tune of $ 816 million were pledged by countries in a conference in Geneva on October 04, 2022. “We expect further funding from multilaterals and friendly countries in the donor conference planned to be held in Pakistan in November this year. Consequently, we expect the external sector to improve further in line with the increase in liquidity,” the statement added. The impression of restructuring of Pakistan’s debt is refuted unequivocally as currently no such proposal is under consideration or is being pursued as has been categorically stated by the Finance Minister.

Comments

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Harry Oct 07, 2022 09:30am
The question is who represented Finance Division in those meetings with Moody's? Some MA Islamiyat Additional Secretary who joined a preparatory academy to pass CSS; and knows bull about ratings and risk and finance.
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Ali Oct 07, 2022 10:43am
Rating without consultation with the entity is out of way and raises questions.
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Mustafa Atiq Oct 07, 2022 12:32pm
Whether or not the FM was consulted prior to the rating, in my opinion, the downgrade stands to reason. - The FM has time and again stated that the devastation caused by the floods will amount to approx $30 billion. And now when Moody's has taken that into account, the FM is saying it is premature and too early to quantify. - The rebuttal by FM regarding the downgrade entails mentioning all the funding we have and will be receiving from bilateral/multilateral partners in the coming months. Whereas the fact that we are heavily dependent on foreign funding IS in fact one of the reasons for the downgrade. For example, what if Saudi Arabia were to decide to not rollover the $3 billion loan due in December? Our reserves would stand at $3-$4 billion. The fact that we are at the mercy of foreign lenders is a strong enough reason to downgrade Pakistan's outlook. - Our renewed GDP growth is expected to be 2%-3% (Pakistan's estimate) whereas Moody's has estimated it at 0-1%. In my opinion, this is not a farfetched opinion and could be possibly correct based on the current numbers. Saying that it has no solid basis is impractical. I do hope that Moody's estimate is inaccurate but it is certainly not implausible. - Due to the global economic downturn, Pakistan is not the only country suffering from a downgrade. Fitch recently downgraded UK's outlook to negative. Their economic crisis is different than ours, nevertheless, it is clear that Pakistan's economic situation has indeed worsened. Therefore a downgrade is not an unthinkable action.
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