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Covid-19 impact: Moody's puts Pakistan's rating under review for downgrade

Waheed Abbas/Dubai
Filed on May 14, 2020
pakistan, covid-19, coronavirus, moody's, economic impact

(Reuters file)

The global ratings agency said the economic slowdown will weigh on government revenue.

Moody's Investors Service on Thursday placed Pakistan rating under review for downgrade on expectation that the government will request for debt service relief under the recently announced G20 initiative.

The global ratings agency said the economic slowdown will weigh on government revenue and modestly raise spending, in turn pushing the fiscal deficit wider to close to 10 per cent of GDP in fiscal 2020 due to the impact of coronavirus.

"As a result, Moody's projects the government's debt burden to reach around 85-90 per cent of GDP in fiscal 2020. However, the government's commitment to fiscal reforms provides a crucial anchor for the continued expansion of its revenue base when economic activity gradually normalises. Overall, Moody's expects that the debt burden will return to a downward trend after the initial shock," it said in a note released on Thursday.

Currently, Pakistan has reported 36,717 confirmed cases of coronavirus and 788 deaths.

Moody's added that the macroeconomic adjustments that have occurred over the past 18-24 months have also reduced external vulnerability risks in the face of a potentially significant shock.

The ratings agency projected that the current account deficit to be relatively narrow, around two per cent of GDP in this and the next fiscal year, as lower goods and oil imports offset a fall in remittances inflows.

"Combined with financing inflows from multilateral and bilateral official lenders, the balance of payments is likely to be broadly stable, containing pressure on the exchange rate. In turn, a stable balance of payments will likely allow the State Bank of Pakistan, some scope to provide monetary accommodation, which will help contain the government's interest payments," it said on Thursday.

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