Moody's upgrades Pakistan's rating

Moody's on Monday upgraded Pakistan to B3 rating but said that international surveys continue to point to weak rule of law and control of corruption and limited government effectiveness. The agency has given a highly speculative rating of B3, which is seven notches below the investment grade. Moody's upgraded Pakistan from Caa1, which is a substantial risk rating.

In its rating upgrade, it said that the nation's debt profit remains weak due to "fragile" external position and constraints on growth and investment. PM Shehbaz Sharif congratulated the nation for the rating upgrade, although the one-notch elevation would not materially change Pakistan's credit risk. Ahead of the government's plans to venture into western markets to raise billions of dollars, Moody's on Monday upgraded Pakistan's rating to B3 but said international surveys continued to point to weak rule of law and control of corruption and limited government effectiveness.

In its rating upgrade, one of the leading international credit rating agencies said the nation's debt profile remained weak due to a "fragile" external position and constraints on growth and investment. Prime Minister Shehbaz Sharif congratulated the nation for the rating upgrade; however, the one-notch elevation will not materially change Pakistan's credit risk. Moody's upgraded Pakistan's rating from Caa1.

"We have upgraded the rating for the senior unsecured programme to B3 from Caa1 and maintained the outlook for the government of Pakistan at stable," it said. The upgrade reflected expectations that improvements in governance would allow the government to sustain the recent improvements in the country's external position and strengthen fiscal metrics, it added. Moody's commented that "international surveys of various indicators of governance, while showing some early signs of improvement, continue to point to weak rule of law and control of corruption as well as limited government effectiveness".

It further said that fiscal policy effectiveness was low, although it improved somewhat, resulting in a persistently narrow revenue base that constrained the government's capacity to address the country's needs, although measures were being taken to address the issue. The Express Tribune reported last week that the government could complete only four out of 19 Economic Governance System improvement actions for the June-end period, determined by the International Monetary Fund (IMF). The rating agency said that Pakistan's credit profile remained vulnerable due to a structurally fragile external position, weak debt affordability, a still relatively narrow revenue base and constraints on attracting investment and stimulating high-productivity and economic growth.

"These credit constraints are embedded in the B3 rating," it added. While justifying its comments about the weak external position, Moody's said Pakistan's external position remained structurally fragile, reflecting a small export…