- Moody’s says weak governance threat to policy execution.
- Hopes expcted external financing to help cut default risks.
- Says liquidity, external vulnerability risks continue to increase.
SINGAPORE: Moody’s Investors Service Tuesday slashed Pakistan’s sovereign credit rating to ‘Caa3’ amid critical loan talks with the International Monetary Fund (IMF), arguing that the worsening liquidity situation was “significantly raising default risks.”
The cash-strapped nation has been in talks with the IMF to secure a $1 billion loan, which has been pending since late last year over policy issues. It is part of a stalled $6.5 billion bailout package, originally approved in 2019.
Moody’s has also reduced the rating for the senior unsecured MTN programme to (P)Caa3 from (P)Caa1. Concurrently, it has also changed the outlook to stable from negative.
“In particular, the country’s foreign exchange reserves have fallen to extremely low levels, far lower than necessary to cover its import needs and external debt obligations over the immediate and medium term,” said Moody’s in a statement.
The rating agency said that although the government was implementing some tax measures to meet the conditions of the International Monetary Fund (IMF) programme and the disbursement of a loan tranche might help to cover the country’s immediate needs, weak governance and heightened social risks impede Pakistan’s ability to continually implement the range of policies that would secure large amounts of financing and decisively mitigate risks to the balance of payments.
Moody’s said that the stable outlook reflected its assessment that the pressures that Pakistan was facing were consistent with a Caa3 rating level, with broadly balanced risks.
Default risks to reduce
“Significant external financing becoming available in the very near term, such as through the disbursement of the next tranches under the current IMF programme and related financing, will reduce default risk potentially to a level consistent with a higher rating.”
“However, in the current extremely fragile balance of payments situation, disbursements may not be secured in time to avoid a default,” Moody’s statement added.
“Moreover, beyond the life of the current IMF programme that ends in June 2023, there is very limited visibility on Pakistan’s sources of financing for its sizeable external payments needs,” it added.
Moody’s said that the downgrade to Caa3 from Caa1 rating also applies to the backed foreign currency senior unsecured ratings for the Pakistan Global Sukuk Programme Co Ltd. The associated payment obligations are, in Moody’s view, direct obligations of the Government of Pakistan.
Rationale for downgrade
In its rationale for the downgrade to Caa3, Moody’s said that the government liquidity and external vulnerability risks have risen further since Moody’s last review in October 2022.
“Pakistan’s foreign exchange reserves have declined to a critically low level, sufficient to cover less than one month of imports. Amid delays in securing official sector funding, risks that Pakistan may not be able to source enough financing to meet its needs for the rest of fiscal 2023 (ending June 2023) have increased.”
“Beyond this fiscal year, liquidity and external vulnerability risks will continue to be elevated. At the same time, prospects of the country materially increasing its foreign exchange reserves are low,” it said.
External financial needs
Overall, Moody’s estimates that Pakistan’s external financing needs for the rest of the fiscal year ending June 2023 to be around $11 billion, including the outstanding $7 billion external debt payments due. The remainder includes the current account deficit, taking into account a sharp narrowing as imports have contracted markedly.
Moody’s said that in order to meet its financing needs, Pakistan would need to secure financing from the IMF and other multilateral and bilateral partners.
Critical ninth IMF review
“Moody’s assumes successful completion of the ninth review of the existing IMF programme, although this is not secured yet. This would in turn catalyse financing from other multilateral and bilateral partners.”
“At the same time, the government will also need to obtain the rollover of the $3 billion China SAFE deposits and secure $3.3 billion worth of refinancing from Chinese commercial banks for the rest of this fiscal year. Of this $3.3 billion, Pakistan has already received a deposit of $700 million from the China Development Bank on 24 February 2023,” it said.
The rating agency said that while this year’s external payments needs may be met, the liquidity and external position next year would remain extremely fragile.
“Pakistan’s financing options beyond June 2023 are highly uncertain. It is not clear that another IMF programme is under discussion and if it does happen, how long the negotiations would take and what conditions would be attached to it.”
“However, in the absence of an IMF programme, Pakistan is unlikely to unlock sufficient financing from multilateral and bilateral partners,” it said.
According to Moody’s, headline inflation is likely to rise further as energy prices increase in tandem with the removal of energy subsidies.
At the same time, reform measures to raise fiscal revenue are likely to remain key to unlocking further financing from the IMF, as they will help to alleviate debt sustainability risks, as per the agency.
Continued IMF engagement must
“Continued IMF engagement, including beyond the current programme, will likely help to support additional financing from other multilateral and bilateral partners, which can reduce default risk if this is achieved urgently and without further raising social pressures,” said Moody’s in its statement.
PKR on track to become top-performing currency this month: Bloomberg
- Pakistani currency rose around 6% this month against dollar.
- Authorities curb leakages happening through illegal channels.
- Crackdown on illegal dollar traders helps local currency.
The Pakistani rupee is on track to become the top performer globally in September as the caretaker government continues its crackdown on illegal dollar trade, Bloomberg reported Thursday.
The local currency rose around 6% this month against the dollar — an amazing feat despite the Thai baht and South Korean won tumbling against the greenback.
Major currencies lost ground against the dollar on speculations that the US interest rates will stay elevated for longer.
The rupee increased 0.1% to 287.95 per dollar on Thursday, after sliding to a record low of about 307 this month. Pakistan’s currency market will remain closed for the Eid Miladun Nabi holiday on Friday.
“Many leakages were happening through illegal channels of hawala and hundi trade from the open market,” Khurram Schehzad, chief executive officer of Alpha Beta Core Solutions Pvt Ltd, told Bloomberg.
“When the dollar rate reverses everybody, the hoarders, the exporters who are holding their export proceeds, start selling their dollars,” Schehzad said.
The interim rulers have intensified efforts by launching a crackdown on people involved in the illegal dollar trade, allowing the currency to gain some lost ground.
The Federal Investigation Agency, Bloomberg reported, conducted raids across the country and security officials in plainclothes were deployed at money exchanges to monitor dollar sales as part of the crackdown.
Caretaker Prime Minister Anwaar-ul-Haq Kakar this week said the rupee’s gain is “fostering optimism for stability.”
For its part, the State Bank of Pakistan raised the capital requirements of smaller exchange companies and ordered large banks to open their own exchange companies to make the retail foreign exchange market more transparent and easier to monitor.
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inDrive now available in five more Pakistani cities
KARACHI: inDrive, a popular ride-hailing service in Pakistan, has now expanded its network to five more cities across Pakistan including Larkana, Kāmoke, Sheikhupura, Hafizabad, and Okara.
In a statement issued by the transport company, the inclusion of these cities reflects inDrive’s dedication to bringing innovative transportation options to both urban centres and suburban areas.
Speaking about the expansion, Senior Business Representative at inDrive Hasan Qureshi said: “We are excited to extend the convenience and reliability of inDrive to residents of Larkana, Kāmoke, Sheikhupura, Hafizabad, and Okara.”
“Our mission is to redefine transportation by providing safe, affordable, and accessible rides to everyone. With this expansion, we are not only enhancing the commuting experience but also contributing to the economic growth and empowerment of these communities.”
PR Manager Sidra Kiran said that their new service offers city residents the convenience of accessing transport from their homes, eliminating the need to search for it.
“Both drivers and passengers stand to gain significant benefits, including time-saving and the elimination of challenges associated with street hailing. This service addresses issues such as locating rides during odd hours like early mornings or late nights,” she stated.
She further added: “inDrive ride-hailing presents numerous benefits to drivers in small cities, including flexible opportunities, reduced unemployment, supplemental income, enhanced community connection, and positive contributions to the local economy.”
The launch of the company in these cities would benefit both riders and driver-partners.
inDrive further said that it remains committed to upholding the highest standards of safety, affordability, customer service, and technological innovation.
inDrive is Pakistan’s premier ride-hailing service and is revolutionising the way people travel. With a commitment to providing safe, affordable, and reliable transportation.
The company allowed riders to connect with nearby drivers with its app.
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