HONG KONG: Moody's Investors Service cut Pakistan's credit rating by one level to B3 on Tuesday, and warned of further cuts, given the depletion of the country's foreign exchange reserves.
The country is scrambling to borrow funds to provide it with some breathing room, although many analysts expect it will have to seek support from the International Monetary Fund (IMF) to overcome economic problems that stemmed from high oil and food prices.
Moody's retained a negative outlook, which it had imposed last month after Pakistan's rapidly deteriorating external liquidity position accompanied a stalling of economic reforms and mayhem in its domestic politics.
Aninda Mitra, Moody's sovereign analyst for Pakistan, said recent policy moves were not sufficient to stanch the decline in its foreign currency pile, which was further hastened by delays in assistance from key bilateral and multilateral creditors.
Delays: "The failure to obtain timely assistance from Saudi Arabia, China, the United States and other friends, and delays in disbursements from the World Bank, have eroded investors' confidence and resulted in a substantial draw down of Pakistan's foreign currency reserves," he said.
Earlier this month, Standard and Poor's Ratings Services (SPRS) cut Pakistan's rating to CCC-plus, one notch below Moody's. SPRS has also retained the negative outlook.
Pakistan's five-year credit default swaps (CDS) – insurance-like contracts that protect against defaults and restructuring – were quoted at more than 50 percent upfront, a trader said.
Financial markets are mostly worried about a $500 million obligation that the country faces in February, when its 2009 bonds mature. "From a market perspective, what matters is whether they can pay on their commercial obligations," said David Fernandez, JP Morgan's head of economic and sovereign credit research. reuters
