Global rating agency Moody's Investors Service yesterday said it lowered the Pakistani Government's bond ratings to B2 from B1 due to growing economic imbalances amidst renewed political difficulties and following substantial policy slippage.
Moody's also downgraded the Foreign-Currency Bank deposit ceiling to B3. The outlook on the government's bond ratings and bank deposit ceilings was changed to stable from negative.
The stable outlook reflects the prospect of external financial support from multilateral development banks and bilateral creditors that should bolster external liquidity and offer some policy maneuvering room.
Moody's also changed the outlook on the foreign currency country ceiling of Ba3 to negative from stable.
"Substantial fiscal loosening and poor tax collection had led to a sharp erosion of the fiscal position in the run-up to the February elections which have not been adequately corrected," said Aninda Mitra, a Moody's VP and its senior analyst for Pakistan. "Pakistan's difficulties were compounded by a haphazard policy response to sharp supply-side shocks, amidst a prolonged period of intense turmoil. In this environment, Pakistan's fiscal and current account deficits could surpass seven per cent of gross domestic product this year."