Moody's Investors Service on Friday trimmed Pakistan's credit ratings by one notch, citing deteriorating external payment position and political instability.
The bond rating was lowered to Caa1 from B3 and the 'negative' outlook was retained. An upgrade is very unlikely over the medium term, it said.
The agency noted a sharp deterioration in balance of payments over the last year. Moreover, its foreign exchange reserves are dwindling amid looming repayments to the International Monetary Fund.
Further, the institutional weakness stemming from political instability and constrained government finances is another factor behind the rating action, it said.
According to Moody's, foreign direct investment will fall short of $1 billion in 2012. In the current gloomy global economic outlook, the agency sees no improvement in Pakistan's current account over the near-term.
Moody's assessed downward pressure on ratings from weak government finances, structural inflationary pressures and domestic political uncertainties.
The rating agency said the factious relationship between Pakistan's elected political leaders, the judiciary and the military is undermining the government's ability to formulate policies to address the country's pressing domestic economic challenges.
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