Pakistan’s most destructive floods will undermine economic growth, reducing the possibility of a credit rating upgrade, Moody’s Investors Service said.
“The upside room for ratings is limited but downside risks are captured adequately now,” Aninda Mitra, a sovereign analyst at Moody’s, said in a telephone interview from Singapore today. He said the economy may grow about 3 percent in the year ending June 30, less than the 4.5 percent estimated before the floods.
Moody’s, which raised Pakistan’s credit-rating outlook to stable from negative in August last year, rates the nation’s foreign and local-currency debt at B3, six levels below investment grade.
The floods have displaced about 20 million people, submerged 1,500 kilometers (930 miles) of roads, destroyed $1 billion of crops and killed 10 million heads of livestock. The benchmark Karachi Stock Exchange 100 Index has tumbled about 8 percent this month, the worst performer after Vietnam’s market among 93 major global indexes tracked by Bloomberg.
“The impact could be much more severe for Pakistan’s agriculture and overall gross domestic product growth than was previously thought,” Mitra said.
As much as 25 percent of cotton-growing areas may be affected, according to Nishat Mills Ltd., the country’s biggest textile exporter. Pakistan is the world’s fourth-biggest cotton producer.
Toyota Motor Corp. and Unilever affiliates in Pakistan said this month the floods may sap growth and force production cuts as consumers struggle to cope with the destruction of crops and houses.
Moody’s Mitra said it isn’t clear that the floods will have “any obvious or immediate adverse impact” on Pakistan’s ability to repay debt.