Moody’s affirms Pakistan US dollar Trust Certificates issued by The Second Pakistan International Sukuk Company Limited with Caa1 rating, whilst revising the outlook on Pakistan’s foreign currency government bond rating to positive from stable.
A stronger external liquidity position
Net foreign reserves with the State Bank of Pakistan climbed to $11.2 billion as of 13 March 2015, from $3.2 billion at the end of January 2014. The cushion provided by foreign reserves coupled with dwindling external debt repayments to the IMF has reduced external vulnerabilities. This has in large part resulted from a lower current account deficit, which was easily financed by the issuance of a Eurobond in April 2014, a Sukuk issuance in December, continued disbursements under the IMF program, and privatization proceeds.
Efforts towards fiscal consolidation
The government has relied on the banking system for deficit financing, but such borrowing is gradually declining as privatization proceeds, and the Eurobond and Sukuk issuances, have helped it to diversify funding. Moreover, the maturity of domestic public debt is lengthening as the government substitutes shorter-term treasury bills with Pakistan Investment Bonds that carry a longer tenure. This will reduce roll-over risks and volatility in debt issuance prices.