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Thursday, May 23, 2024

Finance Minister Ishaq Dar warns Moody’s of consequences after downgrade

Moody’s Investors Service downgraded Pakistan’s credit rating to ‘Caa1’ from ‘B3’ and maintained the outlook at negative. Finance Minister Ishaq Dar has spoken out against the rating.

It seems that Moody’s decision of downgrading Pakistan’s rating has not been taken kindly by the Finance Division of the country, which has called the rating “unilateral” and “not truly reflective” of the current macroeconomic conditions.

Finance Minister Ishaq Dar has also spoken out against the rating and warned Moody’s Investor Service that he would give a “befitting” reply in a meeting with its officials next week if the agency did not reverse the downgrade of Pakistan’s sovereign credit rating.

“They (Moody’s officials) have to meet me. I told them if you don’t [reverse] this, I will give you a befitting response in our meeting next week,” Finance Minister Ishaq Dar said while talking to the media.

The Ministry of Finance (MoF) also released a statement saying that Moody’s worsening near- and medium-term economic outlook does not depict the correct picture due to gaps in the information available to the agency and its use of estimations is not grounded in fundamentals.

Read more: What Pakistan had to pay to earn Moody’s Up-gradation: Governor SBP

“Ministry of Finance strongly contests Moody’s unilateral rating action as no prior consultation/meetings were held as is required. Pakistan is currently under the IMF program, the continuity of which is based on the confirmation and confidence in the country’s ability to maintain fiscal discipline, debt sustainability, and its ability to discharge all its domestic and external liabilities,” the MoF statement read.

“Moody’s numbers on economic losses and GDP growth rates are based on estimates, Government of Pakistan is still in the process of compiling data in collaboration with the World Bank. The CAD has witnessed a decline over the year and we expect our liquidity position to improve further as the additional funding commitments by our multilateral and bilateral partners in the wake of floods begin pouring,” the MoF added further.

Moody downgrades Pakistan’s rating

In a major blow, Moody’s Investors Service – a prestigious New York-based rating agency –  downgraded Pakistan’s credit rating to ‘Caa1’ from ‘B3’ and maintained the outlook at negative, citing increased government liquidity and external vulnerability risks.

To clarify, the Caa1 rating reflects Moody’s view that Pakistan would remain highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments, in the absence of access to market financing at affordable costs.

Moody’s said Pakistan’s weak institutions and governance strength added to the uncertainty of whether the country will maintain a credible policy path that supports further financing. The negative outlook also captures risks that, should a debt restructuring be needed, it may extend to private sector creditors.

Read more: Another ‘negative’ for the country, after Moody’s and Fitch Ratings