Moody’s Raises Pakistan’s Outlook to Stable After IMF Program

(Bloomberg) --

Moody's Investors Service raised Pakistan's credit rating outlook to stable from negative, citing the International Monetary Fund program that helped stabilize the economy.

The outlook was changed because of narrowing current account deficit, currency flexibility and lower external vulnerability risks, Moody's said in a statement on Monday. The ratings company kept the credit assessment for the nation at B3, a junk rating.

The South Asian nation more than doubled interest rates and devalued its currency by half in the past two years helping stabilize the economy after a deficit blowout. The current account turned into a surplus in October for the first time in four years after the nation entered a $6 billion IMF bailout program.

“This is big for the nation that has been dealing with an economic slowdown,” said Faisal Bilwani, head of international sales at Alfalah CLSA Securities. “Investor confidence is changing to positive.”

Moody's expects the nation's current account deficit to continue narrowing to average about 2.2% of gross domestic product in the current and next fiscal year compared with 5% in fiscal 2019, according to the statement.

“The worst is behind us,” said Khurram Schehzad, Chief Executive Officer at Karachi-based advisory Alpha Beta Core Solutions Pvt. “Stability has largely subsided macro economic fears.”

Pakistan's benchmark KSE-100 rose 2.1% to close at the highest level in more than nine months. The key index has surged 40% since a low in August that makes it the top global performer globally, according to data compiled by Bloomberg.

Moody's expects ongoing fiscal reforms, anchored by the IMF program and technical assistance from other development partners, to contribute to a gradual narrowing of fiscal deficit. The reforms would also mitigate debt sustainability and government liquidity risks, according to the statement.

--With assistance from Ismail Dilawar.

To contact the reporter on this story: Faseeh Mangi in Karachi at fmangi@bloomberg.net

To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Khalid Qayum

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