ISLAMABAD – Moody’s Investors Service, (Moody’s) has assigned a foreign currency senior unsecured programme rating of (P)B3 to the Government of Pakistan’s global medium-term note programme, as well as B3 ratings to the senior unsecured, US dollar denominated notes issued under the programme with maturities of 5, 10 and 30 years.
The payment obligations associated with the notes representing drawdowns from the programme are direct, unsecured obligations of the Government of Pakistan and rank pari passu with all its other unsecured and unsubordinated obligations. Pakistan intends to use the net proceeds from each issuance for general budgetary purposes.
The ratings mirror Pakistan’s long-term issuer rating of B3.
RATINGS RATIONALE
Pakistan’s B3 rating is underpinned by the country’s robust long-term growth potential, a relatively large but low-income economy, and a stable banking sector. Ongoing reforms and institutional enhancements also raise policy credibility and effectiveness, although from a low base. Moody’s expects economic activity in Pakistan to continue to rebound over the next two years as the country recovers from the coronavirus shock. Supply-side improvements, including through projects under the China-Pakistan Economic Corridor (CPEC), coupled with improvements in domestic security and trade policy, will also help spur long-term investments, with the potential to revitalize the economy’s industrial base over time.
Balanced against these credit strengths are the government’s narrow revenue base that weakens debt affordability, the country’s still material structural constraints to economic and export competitiveness and still low, although rising, foreign exchange reserve adequacy, and long-term political risks. In particular, while revenue as a share of GDP grew in fiscal 2020 (ending June 2020), it remains low and continues to limit fiscal flexibility in the face of shocks and the ability of the government to reduce its debt burden. That said, Moody’s expects fiscal reforms, including under the country’s International Monetary Fund (IMF) programme and projects with other development partners, to mitigate risks related to debt sustainability and government liquidity.