Moody's raises Pakistan's foreign debt rating to 'Positive'

ISLAMABAD (November 19 2002) : Moody's Investors Service, a credit rating agency, has raised outlook to 'Positive' from 'Stable' on Pakistan's B3 country ceiling for long-term foreign currency debt on stronger foreign currency reserves and ability to meet external liabilities.

The agency said in a statement that as a result of this action, the outlook on the B3 rating of the government's outstanding Eurobond has been moved to 'Positive' from 'Stable'.

In spite of the many uncertainties and economic fragilities that prevailed in the country, the rating agency said the country's strong recovery in external assets relative to short-term liabilities, and the greater likelihood that these assets can be retained, warranted an upward shift in the outlook to 'Positive'.

Moody's pointed out that an initial build-up in reserves had already been taken into account in its upgrading of Pakistan's foreign currency ratings to B3 from 'C-1' in January. Pakistan's foreign currency reserves increased to over $8.6 billion this month on increasing remittances and State Bank buying of dollars from the market.

Barring major shocks, the agency expects that Pakistan's economy would continue to grow at a pace similar to that of the last few years, although an improvement in global demand, coupled with greater political stability, could push growth even higher over the near term.

It said that for the longer term, faster growth and poverty alleviation will depend on the pace of structural reform, and on whether the political environment is stable enough to attract increased private investment.

The rating agency emphasised that regional and domestic political uncertainties continued to constrain the country's creditworthiness, especially the tensions with neighbour India.

It said that popular opposition to President Musharraf's co-operation with the US military action in Afghanistan was a divisive issue in the recent legislative elections and delayed the formation of new parliament.

On the economic front, Moody's said that reducing public debt from onerous current levels would be an arduous task unless growth is revived on an aggressive basis. Pakistan's balance of payments will also likely remain dependent upon financial assistance from its multilateral or bilateral creditors and donors for years to come, it said.

The statement said that the generation of substantial autonomous inflows from non-resident Pakistanis in response to the government's tightening of financial controls, plus the last few years' expansion of merchandise exports, boded well for increased self-sufficiency in the current account.

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