Singapore January 18, 2022: Moody’s Investors Service (“Moody’s”) has today assigned a B3 backed senior
unsecured rating to the proposed US dollar-denominated trust certificates (sukuk) issuance by the Governmentof Pakistan through The Pakistan Global Sukuk Programme Company Limited (“the Company”), a specialpurpose vehicle, which is wholly-owned by the Government of Pakistan and whose debt and trust certificateissuances are, in Moody’s view, ultimately the obligation of the Government of Pakistan.
The assigned rating to the sukuk mirrors the Government of Pakistan’s current issuer rating.
According to theterms and conditions available to Moody’s, the trust certificates will constitute direct, unconditional and unsubordinated obligations of the Government of Pakistan. In Moody’s opinion, the payment obligations represented by the securities to be issued by the Company rank pari passu with all of the Government ofPakistan’s current and future senior unsecured external debt.
Proceeds from the sukuk issuance will be used by the Company to purchase assets from the National Highway Authority. The amounts subsequently received by the Government of Pakistan in consideration for the transaction will be used for general budgetary purposes.
Moody’s notes that its sukuk ratings do not express an opinion on the structure’s compliance with Shari’ah law.
RATINGS RATIONALE
Pakistan’s B3 issuer rating is underpinned by its relatively large economy and robust long-term growthpotential, as well as ongoing reforms that may strengthen policy effectiveness over time. Credit challengesinclude structural constraints to export competitiveness, the government’s high debt burden and a narrow
revenue base that reduces fiscal flexibility and weakens debt affordability, as well as political risks that can
influence the reform trajectory.
ENVIRONMENTAL, SOCIAL, GOVERNANCE CONSIDERATIONS
Pakistan’s ESG Credit Impact Score is Highly Negative (CIS-4), reflecting its high exposure to environmental
and social risks, as well as its weak governance profile. Relatively weak institutions constrain the government’s
capacity to address ESG risks.
The exposure to environmental risk is Highly Negative (E-4 issuer profile score) because of Pakistan’s
vulnerability to climate change and the limited supply of clean, fresh and safe water. With varied climatesacross the nation, Pakistan is significantly exposed to extreme weather events, including tropical cyclones,drought, floods and extreme temperatures. In particular, the magnitude and dispersion of seasonal monsoonrainfall influence the agricultural sector growth and rural household consumption. The agricultural sectoraccounts for around 20% of GDP and exports, and nearly 40% of total employment. Overall, around 70% ofthe entire population live in rural areas.
As a result, both droughts and floods can create economic, fiscal and
social costs for the sovereign.
The exposure to social risk is Highly Negative (S-4 issuer profile score), driven primarily by safety concerns
that have limited investment and diversification opportunities. Still very low incomes as well as the limitedaccess to quality healthcare, basic services, housing and education, especially in rural areas, are alsoimportant social issues. That said, the government is focused on reducing poverty and inequality,strengthening social safety nets, and promoting human capital as key priorities through its expansive “Ehsaas” programme, although effects will take time to materialise and are limited by still weak institutions and
governance.
The influence of governance is Highly Negative (G-4 issuer profile score). International surveys of variousindicators of governance, while showing some early signs of improvement, continue to point to weak rule oflaw and control of corruption, as well as limited government effectiveness. These weaknesses are balancedagainst a lengthening track record of effective checks and balances and judicial independence for the level of
development in the country, and gradually increasing transparency and dialogue in policymaking.
