Moody’s Investors Service has assigned a provisional rating of (P)B3 to Pakistan’s announced global bond offering while keeping the outlook stable.“Pakistan’s B3 issuer rating reflects moderate economic strength with a supply-constrained economy that has been resistant to structural change,” the ratings agency said in a statement issued on Friday. “Although the scale of the economy is relatively large, globally, Pakistan’s per-capita income level is relatively very low.”It said the implementation of the China-Pakistan Economic Corridor (CPEC) will help bolster growth through investment in transportation and power generation infrastructure. The ratings agency added that the government has gained significant traction on reforms under the International Monetary Fund’s programme, key goals of which include deficit reduction, resolving constraints in the energy sector, and the privatisation of several state-owned enterprises. It is also predicted that The improved security environment will spur growth, he has said. The story is a good one, but will the investors buy it? A ratings report from Moody’s issued only days before the road show began suggests that the investors will be looking elsewhere for their comfort with the Pakistani bond.That release says in Pakistan, “institutional effectiveness has been hampered by factious relations between the executive, military and judicial branches of government” and “political event risks remain relatively high … despite recent stability”.Downward pressures on Pakistan’s credit rating come from “very low fiscal strength, due to its high debt levels and weak debt affordability in light of a narrow revenue base”, says Moody’s.Meanwhile, ratings are held up by “support from multilateral and bilateral lenders” alone, which raises several questions given the approaching end of the IMF programme next year, and the choppy waters between Islamabad and Washington D.C. these days.Despite rising reserves, “the level of external public debt poses a moderate degree of credit risk”. The picture painted by Moody’s offers a sharp contrast to the turnaround story that the government has been basking in for some time now.Clearly, investors remain focused on the fundamentals in spite of the government’s attempts to change the topic to improved security and rising reserve coverage of imports.The bond offering is likely to be successfully subscribed, but all eyes will be on the level of participation and the spreads offered, which were very high during the last such exercise. The government deserves some credit for having stabilised a deeply troubled economy.
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