Pakistan was downgraded to Caa3 form Caa1 by Moody’s citing “increasingly fragile liquidity” and an external position that “significantly raises default risks”. Moody’s cited Pakistan’s sharp drop in forex reserves as one of the major factors that impacts them. They noted that forex reserve levels ($3.26bn as at February 23) are far lower than necessary to cover its imports needs and external debt obligations over the immediate and medium term. Also, while an IMF disbursement may help it cover some immediate needs, the broad weak governance and heightened social risks impede its ability to policies that can secure large amounts of financing.

Pakistan’s dollar bonds were trading slightly weaker at ~41-45 cents on the dollar.

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