On Friday, Pakistan protested a rating cut by Moody’s Investors Service, claiming that despite experiencing the worst floods in its history, it has the reserves and financing to pay off external debt.
Since the action is interpreted as a warning that Pakistan may default on its foreign debt, such cuts have a tendency to undermine investor confidence.
Pakistan’s indignant response comes a day after Moody’s revised Pakistan’s sovereign credit rating by one notch to the still-high credit risk status of “CAA1” from “B3,” noting the decline in foreign exchange reserves in the impoverished country. The flood that killed 1,700 people, left 500,000 homeless, and cost about $30 billion also contributed to Moody’s revision.
The Finance Ministry issued a strongly worded statement stating that “the rating action taken by Moody’s is very contentious because it was undertaken without talks with the ministry or the country’s central bank.”
The department declared that it was giving Moody’s the information and pleading with the rating agency to retract the downgrade.
The United Nations increased its request for humanitarian aid to Pakistan from $160 million to $816 million in response to the medical and other hazards facing half a million flood survivors.
During a meeting in November, the ministry of finance stated that it anticipates receiving more assistance from multilateral and friendly nations.
As a result, she continued, “we anticipate that the external sector will continue to improve in step with the growth in liquidity.”
According to the ministry, Pakistan is now participating in the IMF programme as part of an agreement built on assurance and trust in Pakistan’s ability to uphold fiscal restraint, sustain its debt load, and have the resources to fulfil all of its internal and external obligations.
Pakistan and the IMF signed a $6 billion agreement in 2019; however, despite receiving a significant $1. 112 billion tranche a few weeks ago, the country’s economy has suffered significantly as a result of flood damage.
Moody’s urges a turnabout. Pakistan objects to a reduction in its credit rating.
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