Analysts explain significance of ratings upgrade
Following Fitch’s upgrade last month, Moody’s has followed suit by elevating Pakistan’s credit rating from Caa3 to Caa2 and most importantly Moody’s has also upgraded the outlook to positive from stable.
Moody’s recent upgrade of Pakistan’s credit rating and outlook is far more than a mere notch higher on a rating scale, it reflects a growing global confidence in Pakistan’s capacity to navigate its financial challenges and lay the foundation for sustainable economic growth, analysts said.
The upgrade to Caa2 reflects Pakistan’s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels, Muhammad Sohail, senior analyst and CEO of Topline Securities said. Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating, he added.
As per Moody’s there is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility (EFF) of $7.0 billion, Sohail said.
“Moody’s expect the IMF Board to approve the EFF in the next few weeks.” Sana Tawfik at Arif Habib Limited said this development offers the economy crucial breathing space, enabling the government to concentrate on implementing longer-term reforms.
“With today’s upgrade, alongside Fitch’s earlier revision, Pakistan is now better positioned to access international capital markets on more favorable terms,” Sana Tawfik said adding that this paves the way for the potential issuance of Eurobonds and Panda bonds at more competitive rates, a move that could significantly lower borrowing costs, alleviate debt servicing pressures, and create essential fiscal space.
Senior analyst Khurram Schehzad said that the best part is the outlook for Pakistan has been upgraded to positive, from stable earlier. The upgrade came on account of improved economic stability, macro de-risking, greater certainty, and restoration of investors’, partners’ and creditors’ confidence and perception towards Pakistan, he said.