http://www.dailytimes.com.pk/default.asp?p...27-5-2006_pg5_3
Saturday, May 27, 2006
Moody’s rating for Pakistan up with new methodology
Staff Report
KARACHI: In the recent review under a new methodology, Pakistan’s foreign-currency ceiling has been raised by two notches from B2 to Ba3, by international credit rating institution Moody’s.
The new outlook on Pakistan’s Ba3 foreign currency debt is “Stable.” On Thursday, Moody’s Investors Service raised its foreign-currency country ceilings for bonds following the change in its approach. This has resulted in the upward revision of 70 countries’ ratings, while no country’s ceiling has been downgraded. Pakistan’s rating has been raised by two notches under the revised methodology.
Under the new methodology, the country’s foreign-currency ceiling will reflect the reduced probability that a government would impose restriction on foreign-currency debt repayment. This has resulted in improved foreign-currency ceiling of a number of countries thereby raising the ratings of those countries. In fact, it was observed that due to this new approach, ceilings of the majority of countries rated by Moodys were upgraded by at least one notch. Countries having US dollar as their default currency have not been affected by the change in methodology, as their risk profile remains intact.
Previously, for assessing countries the rating agency assumed that a foreign-currency bond default by the government would be accompanied by foreign-currency payment restrictions.
Pakistan’s foreign-currency ceiling has been raised and outlook on Pakistan’s foreign currency debt is “Stable.” Under previous rating of B2 for its foreign currency debt, Pakistan had “Positive’ outlook. This has made Pakistan closer to Investment Grade, as now it is only three notches down, while previously it was five notches below, from the entitlement of Investment Grade. Neighbouring India has got an improvement of one notch from Baa3 to Baa2 with stable outlook.
“Despite the interventionist nature of the Pakistani government, we believe that the risk of imposing a moratorium is lower than such a policy tradition would indicate. Also, we have the recent example in which the Pakistani government defaulted on its foreign-currency bonds, but did not impose a moratorium on private sector bonds and notes,” these are comments of Moodys on Pakistan’s moratorium risk.
On the other hand, in last seven years Pakistan’s foreign currency rating by Standard & Poor’s Ratings Services has been upgraded by seven notches to B+ from SD. The last revision in ratings was done in November 2004 by S&P, where it raised Pakistan’s long-term sovereign credit ratings by one notch to ‘B+’ from ‘B’ for foreign currency. In December 2005, S&P revised its outlook on the foreign currency rating to “Positive” from stable and reaffirmed its B+ foreign currency.