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Pakistan

Dar brushes off concerns after Moody’s cuts Pakistan's rating

  • Will give befitting reply to Moody’s if downgrade not reversed, says finance minister
Published October 7, 2022
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Finance Minister Ishaq Dar brushed off concerns after Moody’s Investors Service (Moody’s) cut Pakistan’s sovereign credit rating, saying there is "nothing to worry about".

“There is nothing to be worried about, I spoke with Moody’s yesterday (Thursday), and told them that they shouldn’t have done this. They should have consulted with us,” said Dar while talking to media persons outside the Islamabad accountability court on Friday.

The statement comes after Moody’s on Thursday night downgraded the government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from B3.

Moody’s also downgraded the rating for the senior unsecured MTN programme to (P) Caa1 from (P) B3. The outlook remains negative.

The decision to downgrade the ratings to Caa1 was driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022, said the rating agency.

The floods have exacerbated Pakistan’s liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue has been severely hit.

The rating agency stated that debt affordability, a long-standing credit weakness for Pakistan, will remain extremely weak for the foreseeable future.

However, the Ministry of Finance, in its response, said it strongly contested Moody’s rating action.

“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,” a statement issued by the ministry said.

"Following Moody’s intimation of the rating action, the ministry held two meetings with the agency'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," the ministry added.

"The government had adequate liquidity and financing arrangements to meet its external liabilities."

Meanwhile, Dar said the UK was also recently downgraded by Fitch Ratings from stable to negative.

“The ratings from these agencies is essential for issuing bonds and Sukuks in the international market,” he said.

Dar said he conveyed to Moody’s that he would give a "befitting" reply in his meeting with its officials scheduled for next week, if the agency did not reverse its decision.

“They (Moody’s officials) have to meet me. I told them if you don’t [reverse] this, I will give you a befitting response in our meeting next week,” he said.

Comments

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Shahid Khalid Oct 08, 2022 05:17am
Ishaq Dar thinks that he is some kind of a super hero that Moody will listen to him as Moody has their own ways to determine the ratings. Previously Dar said that he will "he knows how to handle IMF". He should be more realistic as IMF can block the next loan payment and the $ will shoot up again.
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Concerned Oct 08, 2022 09:31am
That’s not how international finance works Mr. Dar, should they change their outlook to stable and positive while the country rides one of its worst inflationary periods? With forex levels below 8 billion, importers still having trouble clearing consignments, high costs of energy and doing business and the unchecked rampant corruption all around from the small shopkeeper all the way up to the prime ministers that beg around the world, what exactly has changed? A befitting reply would be to turn the economy around with proper long term beneficial policies towards business and industry, not manipulated financial statements. Even though our skulls might be too thick to look through the charade, a country that can barely sustain itself for 3/4 weeks needs to get of their high horses and see the reality.
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