On Thursday, one of the world’s top three credit rating agencies, Moody’s Investors Service, downgraded Pakistan’s outlook from stable to negative.
It did, however, maintain the ‘B3’ long-term issuer and senior unsecured debt ratings in local and foreign currency.
The rating agency stated in its report that the decision to modify the outlook to negative was motivated by Pakistan’s increased external vulnerability risk and uncertainty about the sovereign’s ability to acquire additional external funding to meet its needs.
Rising inflation, according to Moody’s, has exacerbated Pakistan’s external vulnerability risk, “putting downward pressure on the current account, the currency, and – already thin – foreign exchange reserves, especially in the context of heightened political and social risk.”
Pakistan’s weak institutions and governance add to the uncertainties surrounding macroeconomic policy’s future trajectory, especially whether the country will complete the current IMF Extended Fund Facility (EFF) program and maintain a credible policy path that allows for additional funding.