Pakistan’s debt rating remains on review for a downgrade as a “narrow avoidance” of default was not a vast improvement of its creditworthiness, Moody’s Investors Service said.
Moody’s “will not take any immediate rating actions” based on the weekend announcement of a $7.6 billion bailout from the International Monetary Fund, said Aninda Mitra, a sovereign analyst at the ratings company in Singapore. Pakistan still needs to show it can meet debt payments due in the first half of 2009 and secure additional assistance from other donors, he said.
Officials from Pakistan and a group of potential donor countries are meeting today in Abu Dhabi to set an agenda and date for a ministerial-level meeting later. South Asia’s second-biggest economy needs aid after its foreign-exchange reserves shrank 75 per cent in the past year to $3.5 billion, threatening its ability to repay debt.
Pakistan’s credit rating was lowered by Moody’s on October 28 to B3 from B2, six rankings below investment grade. The so-called ‘Friends of Pakistan’ group meeting today includes the US, UK, China and Saudi Arabia.
“We would like to see whether the IMF agreement results in unlocking assistance flows from other bilateral creditors who were approached by the government, but were reluctant in providing assistance,” Mitra said today.
The IMF loan may help the nation overcome a “crisis of confidence” and improve its debt rating, Rajat Nag, Managing Director at the Manila-based Asian Development Bank, said in an interview in New Delhi yesterday.
“There is no reason why it should not” lead to an upgrade in Pakistan’s credit rating, Nag said. “The IMF program will bolster confidence and I am optimistic Pakistan will be able to undertake the reforms required for the bailout package.”
“The ‘Friends of Pakistan’ group wanted us to get an IMF endorsement for our economic program,” Shaukat Tarin, the de facto finance minister, said in Karachi November 15. The IMF loan “will give confidence to investors, and it will help us in seeking more aid.’’
Ahead of the IMF loan, central bank Governor Shamshad Akhtar last week made the “toughest decision” of her life and increased the benchmark interest rate to 15 percent from 13 per cent.
Hungary, Iceland and Ukraine also negotiated IMF packages in recent weeks as the economic crisis threatens to push the world into recession.Government debt from Pakistan is perceived by investors as the second-riskiest in the world.
