Moody’s said Wednesday that it had raised Pakistan’s credit rating with a notch to ‘CAA1’ from ‘CAA2’ due to an improvement in external financial position, and that awarded the country a “stable ‘view.
The announcement came within hours after Pakistan’s Finance Minister Mohammed Aurangzeb said there was more room for the central bank to reduce the country’s key policy rate from 11% on the back of positive economic indicators.
“The improvement of credit rating is a sign that economic policies are heading for the right direction,” Prime Minister Shehbaz Sharif said in a statement.
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Pakistan’s international bonds rose as much as 1 cents to between 90 and 100 cents on the dollar after upgrading the ratings. It lifted most of them to their highest since the beginning of 2022, when fear of a full -blown debt crisis sent those who threw themselves to as little as 30 cents.
Moody’s decision to raise the assessment with a notch after Fitch and S&P did the same will help Pakistan’s ability to raise external debt. Pakistan says its economy is on a recovery path after an IMF Bailout of $ 7 billion helped stabilize it.
“We changed the prospects of Pakistan’s government to be stable from positive,” Moody’s said in a statement.
“Upgrading to CAA1 reflects Pakistan’s improved external position, supported by its progress in reform implementation during the IMF Extended Fund Facility (EFF) program,” it said.
Pakistan’s affordable debt has improved, but is still one of the weakest among nominal sovereign, Moody’s said, adding that the CAA1 rating also reflected the country’s weak governance and high degree of political uncertainty.
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Aurangzeb told a collection of business people in Islamabad prior to Moody’s announcement that he expected an improvement in Pakistan’s credit rating of other agencies after Fitch and S&P.
“We hope for progress in terms of the political rate going south,” he added.
Aurangzeb said it was his personal opinion that there was more room for a rate that was cut towards the end of the year, adding that it was for the central bank to make the last call on the question.
The next announcement of political rate is expected on September 15.
The central bank left its most important interest rate unchanged at 11% on July 30 and went against analysts’ expectations. In a Reuters vote, they had predicted a reduction of 50 to 100 basic points.
The bank said the inflation prospects had worsened due to rising energy prices.
Inflation accelerated to 4.1% year to year in July.
