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

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.