Global Funding Conditions Could Make Pakistan’s Debt Problems Even Worse: Moody’s

Moody’s, the sovereign credit rating agency, has said that Pakistan’s foreign exchange reserves are low, and gross borrowing requirements are large, threatening the ability of the government to refinance debt and fund deficits affordably.

The report further said that Pakistan does not have enough foreign exchange reserves to pay its public and private external debt due over this year. Foreign exchange reserves are on the lower side in Pakistan and they threaten the government to refinance debt.

Moody’s external vulnerability indicator (EVI) reading for Pakistan has exceeded 160% for 2019, indicating that total public and private external debt due over the next year will be larger than foreign exchange reserves.

Pakistan’s foreign reserves declined owing to persistent current account deficit. The reserves coverage of imports has also fallen, Moody’s further said.

“Reserves coverage of imports has also fallen and the total reserves are now worth less than two months of goods and services imports’’ the credit agency noted.

According to Moody’s, tighter global funding conditions resulting in higher credit risk premia and/or domestic interest rates would quickly transmit to government finances in Pakistan – where debt affordability is already weak– owing to large gross borrowing requirements.

This shows Pakistan has a large borrowing requirement but tighter global funding conditions may result in higher credit risk for the country whose debt affordability is already very weak.

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