Moody’s starts reviewing Pakistan’s credit rating for downgrading

Respected international financial rating agency Moody's Investors Service on Thursday started reviewing to downgrade Pakistan’s credit rating.

According to Moody’s, the current shock transmits mainly through a sharp slowdown in economic activity, lower tax revenue as economic activity slows, and higher government financing needs relative to pre-coronavirus levels.

The agency expects that Pakistan will request bilateral debt service relief from G20 creditors under the recently announced initiative and the associated possibility of losses to private sector creditors.

“During the review period, Moody's will assess whether Pakistan's participation in the initiative will indeed be implemented without private sector participation, consistent with the intended voluntary nature of private sector participation, or whether any losses may be expected to arise for private sector creditors that would be consistent with a lower rating. Pakistan has not indicated any interest in extending the debt service relief to include private sector creditors.”

Moody's warned that the main impact of the coronavirus shock is on Pakistan's economic growth, adding that “the coronavirus outbreak presents a significant shock to the domestic economy in part due to the measures aimed at restricting the movement of people to prevent the spread of the virus.

“Moody's expects Pakistan's economy to contract by around 1% in fiscal 2020 (ending June 2020), and to grow by 2-3% in fiscal 2021 -- below potential.”

The economic slowdown will also push the fiscal deficit wider to close to 10 percent of GDP in fiscal 2020, as Moody's projected the government's debt burden to reach around 85-90 percent of GDP in fiscal 2020.