Pakistan was downgraded to Caa1 from B3 by Moody’s due to increased risks on liquidity, external vulnerability and debt sustainability ever since the floods hit in June. The floods have exacerbated liquidity and external credit weaknesses, with government revenue being hit severely. The nation is also said to be one of the weakest sovereigns that Moody’s rates, regarding debt sustainability. Moody’s notes that the Caa1 rating indicates that the nation will remain “highly reliant on financing from multilateral partners and other official sector creditors to meet its debt payments”. Moody’s cut Pakistan’s real GDP growth to 0-1% for fiscal 2023 vs 3-4% pre-floods. Also, fiscal deficits are set to widen to 7-8% of GDP vs 5-6% pre-floods. Debt-to-revenues are very high at 600% in fiscal 2022 and is expected to further increase next fiscal, more than 2x that of Caa-rated sovereigns. Forex reserves are sufficient to cover less than two months of imports despite the recent $1.1bn IMF disbursement.

Pakistan’s dollar bonds were flat with its 7.375% 2031s at 38.19 cents on the dollar.

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