Moody's may upgrade Pakistan

Moody's Investors Service said it placed Pakistan's B2 foreign- and local-currency government bond ratings on review for possible upgrade.

Pakistan's country ceiling for foreign-currency bonds remains at Ba3 with a stable outlook, and its country ceilings for local-currency bonds and bank deposits are unchanged at Baa2. The outlook on the B2 country ceiling for foreign-currency bank deposits has been changed to stable from positive.

The review was prompted by the ongoing decline in the country's public and external debt ratios, largely the result of a substantial structural increase in GDP growth in recent years, coupled with a relatively restrained, albeit currently loosening, fiscal policy, Moody's said.

The agency said it maintains some reservations concerning persistent inflationary pressures, the deteriorating current account balance and a relaxation of fiscal policy.

But, Moody's said, it recognizes a substantial portion of extra government expenditure is being directed toward development spending and reconstruction following the 2005 earthquake. An additional rating constraint is the low level of government revenue as a proportion of GDP, which stems from an inadequate tax base. The review will focus on the extent to which these issues cloud the economic outlook and the potential impact they could have on the government's creditworthiness over the medium term, the agency said.

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