‘Nothing to worry about’: Dar dismisses concerns raised by Moody’s downgrading Pakistan

After Moody’s Investors Service downgraded Pakistan’s sovereign credit rating on Friday, Finance Minister Ishaq Dar dismissed worries, stating there is ‘nothing to worry about’.

“There is nothing to be worried about, I spoke with Moody’s yesterday and told them that they shouldn’t have done this. They should have consulted with us,” said Dar while talking to the media.

The announcement follows Moody’s Investors Service’s (Moody’s) Thursday night downgrading the government of Pakistan’s senior unsecured debt rating from B3 to Caa1 for both local and foreign currency issuers.

According to Express Tribune, the senior unsecured MTN program’s rating was similarly reduced by Moody’s, moving from (P) B3 to (P) Caa1. The future remains bleak.

In the wake of the terrible floods that have struck the nation since June 2022, the rating agency said that the decision to lower the ratings to Caa1 was motivated by greater government liquidity, external vulnerability risks, and higher debt sustainability risks.

The floods have significantly increased the need for social spending, compounded Pakistan’s problems with liquidity and external credit, and negatively impacted government revenue.

According to the rating agency, Pakistan’s long-standing credit weakness of extremely weak debt affordability would continue for the foreseeable future.

However, the Ministry of Finance vehemently contested Moody’s rating decision in its reaction. “The rating action by Moody’s is strongly contested by the Ministry of Finance as the rating action by Moody’s was carried out unilaterally without prior consultations and meetings with our teams from the Ministry of Finance and State Bank of Pakistan,” a statement issued by the ministry said.

“Following Moody’s intimation of the rating action, the ministry held two meetings with the agency’s team over the past 24 hours, sharing data and information which clearly show a picture contradicting Moody’s rating action.

“After a regular stock take of the economic and fiscal conditions, the Ministry of Finance informed that government policies over the last few months have helped in fiscal consolidation,” the ministry added.

“The government had adequate liquidity and financing arrangements to meet its external liabilities.”

Dar said that Fitch Ratings recently downgraded the UK from stable to negative. “The ratings from these agencies is essential for issuing bonds and Sukuks in the international market,” he said. He claimed that he informed Moody’s that if the organisation did not change its mind, he would provide a “befitting” response at his meeting with its representatives set for next week.

“They (Moody’s officials) have to meet me. I told them if you don’t [reverse] this, I will give you a befitting response in our meeting next week,” he said.