Aug. 17 (Bloomberg) -- Pakistan’s credit rating outlook was raised to stable from negative by Moody’s Investors Service, which cited an increased International Monetary Fund loan.

The IMF bailout “would help to safeguard foreign currency reserve adequacy against the risks of further deceleration in private capital flows,” Moody’s analyst Aninda Mitra said in a statement today. The loan will also help the country obtain bilateral assistance, he said.

The IMF this month increased Pakistan’s loan package to $11.2 billion, approving an additional $3.2 billion to help revive South Asia’s second-biggest economy. Governor Salim Raza on Aug. 15 cut the central bank’s benchmark interest rate to 13 percent from 14 percent to aid growth.

A stable outlook “will help Pakistan in raising debt overseas, if it decides to tap international markets,” said Muzzammil Aslam, an economist at JS Global Capital Ltd. in Karachi. Pakistan’s government plans to raise $500 million by selling foreign-currency bonds this fiscal year, he said.

The changed outlook will have a “positive impact” on the stock market and may encourage foreign investment in Pakistan, Aslam said.

Overseas direct investment in Pakistan fell 42 percent in July from a year earlier to $200 million, according to data from the central bank.

‘Ongoing Insurgency’

Moody’s rates Pakistan’s foreign debt at B3, six levels below investment grade and the same ranking as Argentina and Bolivia. The country’s local-currency bonds are rated at the same level.

The IMF loan and policy changes from the government should avert the likelihood of external payment arrears over the next 12 to 18 months, Moody’s said.

“Despite a weak external environment and an ongoing insurgency in the northwestern regions of the country, Pakistani authorities are implementing several policy and structural reforms,” Mitra said.

Pakistani security forces are fighting Taliban militants in the country’s northwest tribal region and Swat valley. The army says it has killed more than 1,700 militants since April in Swat. The militants have retaliated with a series of terrorist attacks and suicide bombings.

A bomb attack in the northwestern Charsadda city today killed six people, GEO Television reported.

To contact the reporter on this story: Khalid Qayum in Islamabad at kqayum@bloomberg.net

Last Updated: August 17, 2009 04:26 EDT