Pakistan charms Moody's

Another feather in the cap for Finance Minister Ishaq Dar and his team! Moodys Investors Service yesterday up-graded Pakistan's foreign currency government bond rating from 'negative' to 'stable', while the rating has been sustained at Caa1. Also, the government's issuer rating and senior unsecured rating have been affirmed at Caa1. That should cheer up Pakistans bond creditors.
The rating up-grade is backed by the ongoing progress on reforms under the IMF programme. Moody's attributed improving external liquidity position and progress on structural reforms as the key grounds behind the improvement in outlook.
"Although the progress on economic front has been encouraging, I am positively surprised by Moody's remarks. Just focusing on economic numbers while keeping the political noise aside, the economy has definitely shown an uptick. Improvement in external account position, progress on privatisation plans, and focus on lower cost energy generation alternatives to curb energy crises, all demonstrate that reforms are under way," Junaid Iqbal, CEO of Elixir Securities, told BR Research when contacted following the news.
Moreover, by looking at the response received in recent secondary offerings of PPL and UBL, one can say that there is healthy demand for Pakistani papers in the global market, he added.
On top of that, with little options for Islamic instruments available globally, the governments plan to issue dollar-denominated Sukuk to global investors is set to be well-received by international markets. With this, the government can even plan to issue Sukuk at a relatively lower cost as global validity has once again revived investor confidence in Pakistan, according to sources.
From the context of stock market, the news came as a surprise for market pundits who stayed dull in the past few trading sessions owing to lack of positive triggers and uncertainties on the political front. The KSE-100 surged 387 points to close at 29,705 yesterday.
While all this is good news, Moody's has also raised some red flags, including "a stalling of the ongoing IMF program, deterioration in the external payments position or a worsening political environment..." - possible events which will be viewed as "credit negative". While the former two are less likely in the near future, the last factor--political instability--is a growing concern. The government must try to ease the situation to sustain the positive sentiment.