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Moody’s reaffirms Pakistan’s B3 rating, maintains stable outlook

NEW YORK: Moody’s Investors Service – one of the two leading credit rating agencies – released its latest report reaffirming Pakistan’s sovereign credit rating at B3 with a stable economic outlook.

Moody’s also said that Pakistan’s medium-term growth outlook has been categorized as strong in the backdrop of China Pakistan Economic Corridor addressing infrastructure and energy constraints and the continuing macro stability enhancing reforms initiated by the present Government.

The rating is supported by Pakistan’s strong growth performance and continued commitment towards reform implementation under the International Monetary Fund to reinforce fiscal and monetary discipline achieved over the last four years.

The B3 rating is at number 16 out of the 21 tier rating and is only a notch above from the Caaa3 rating, which is assigned to countries that have substantial risks for potential investors. Pakistan was assigned the B3 rating in June 2015.

Moody’s expects real GDP growth to rise towards 6 percent over the next few years as the country improves competitiveness and continues its progress towards alleviating supply side bottlenecks.

The elimination of energy deficit, improved business productivity and boost to exports is expected to provide impetus for a high growth trajectory. However, foreign exchange reserve would still be vulnerable to any significant increase in imports.

“The government’s debt burden is high and fiscal deficits remain relatively wide, driven by a narrow revenue base that also restricts development spending,” said Moody’s.

Moody’s said that the budget deficit would touch 5 percent of the GDP in fiscal year 2018.  “Large fiscal deficits and a reliance on short-term debt have also contributed to very high gross borrowing requirements,” it stated.

The outlook for growth is strong with stable macroeconomic indicators, discipline in fiscal and inflation management and maintenance of adequate foreign exchange reserves.

Moody’s report acknowledges Pakistan’s improved economic fundamentals and financial strength. It underscores the resilience of Pakistan’s economy, and indicates stalling of the government’s reform agenda including revenue reforms, widening of fiscal deficit and weakening of external payments position as future risks to the economy.

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