Moody's cuts Pakistan to B2

Moody's Investors Service said it lowered the government of Pakistan's bond ratings to B2 from B1 due to growing economic imbalances amidst renewed political difficulties and following substantial policy slippage. The foreign-currency bank deposit ceiling also was downgraded to B3.

The outlook on the bond ratings and bank deposit ceilings was changed to stable from negative, reflecting the prospect of external financial support from multilateral development banks and bilateral creditors that should bolster external liquidity and offer some policy maneuvering room, Moody's said.

The outlook on the foreign-currency country ceiling of Ba3 was changed to negative from stable, reflecting substantial fiscal loosening and poor tax collection that led to a sharp erosion of the fiscal position without correction, the agency said.

Furthermore, Pakistan's difficulties were compounded by a haphazard policy response to sharp supply-side shocks, Moody's said, amidst a prolonged period of intense turmoil that accompanied a difficult post-election political transition.

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