The reason for the downgrade was political instability and the economic downturn.

Moody’s assesses a country according to Economic Strength, which is characterised as "low"; Institutional Strength, "low"; Government Financial Strength, "low"; and Susceptibility to Event Risk, "high."

In February 2012, according to Moody's Investors Service in its annual report, Pakistan's 'B3' rating reflected the country's low economic, institutional and government financial strengths, and its high susceptibility to event risk.

The report also mentioned the recent deterioration in Pak-US relations and the end of the IMF program remove support to the external balance of payments.

Even though official foreign exchange reserves remain adequate, their decline since mid-2011 underscores risk of a high currency crisis.

Copyright Business Recorder, 2012

Copyright Reuters, 2012