Imposition of emergency rule: Moody's may downgrade debt ratings

Moody's Investors Service revised Pakistan's ratings outlook to negative from stable on Monday, saying the imposition of emergency rule by President Pervez Musharraf during the weekend "represents a further erosion in governing capacity."
The ratings agency said it may downgrade the country's debt ratings if external capital inflows significantly diminish or if a loss of domestic confidence leads to a major slowdown in economic activity or otherwise undermines macroeconomic stability.
"The imposition of emergency rule considerably complicates the domestic political scene," said Moody's senior analyst Aninda Mitra. "From a credit perspective, the emergency rule, and more important, the factors behind such an action could undermine Pakistan's ability to sustain significant inflows of confidence-sensitive capital, which have financed a considerable portion of the country's large current account deficit," the analyst added.
Moody's noted that foreign investors and domestic players have been shrugging off political turbulence in Pakistan since the beginning of this year, "however the balance of risks now appears to be shifting to the downside." The ratings agency currently rates Pakistan's foreign- and local-currency bonds at "B1." The outlook for Pakistan's "B2" foreign-currency country ceiling for bank deposits was also changed to negative.