Bangkok--21 May--Moody's Moody's Investors Service has lowered the Pakistani Government's Bond Ratings to B2 from B1 due to growing economic imbalances amidst renewed political difficulties and following substantial policy slippage. The Foreign-Currency Bank deposit ceiling was also downgraded to B3. The outlook on the government's bond ratings and bank deposit ceilings was changed to stable from negative. The stable outlook reflects the prospect of external financial support from multilateral development banks and bilateral creditors that should bolster external liquidity and offer some policy maneuvering room. At the same time, Moody's has changed the outlook on the Foreign Currency Country Ceiling of Ba3 to negative from stable. "Substantial fiscal loosening and poor tax collection had led to a sharp erosion of the fiscal position in the run up to the February elections which have not been adequately corrected," said Aninda Mitra, a Moody's VP and its Senior Analyst for Pakistan. "Furthermore, Pakistan's difficulties were compounded by a haphazard policy response to sharp supply-side shocks, amidst a prolonged period of intense turmoil that accompanied a difficult post-election political transition," says Mitra. "In this environment, Pakistan's fiscal and current account deficits could surpass 7% of GDP this year, up from much lower levels a year ago, and also face increased financing challenges," he said, adding, "These deficits already considerably constrain the central bank's resources and are heightening inflationary pressures." "Moreover, these factors are also reversing a trend of fiscal consolidation and debt reduction and are worsening key credit ratios," says Mitra. "Following considerable political tumult, the coalition infighting now evident is not providing the policy framework needed to stabilize macroeconomic imbalances," added Mitra. Mitra also noted that while privatization could have complemented the government's efforts to help stabilize its finances, differences of opinion within the government appear to have stalled any progress in this area. He added, however, that "external assistance from bilateral donors and multilateral development banks could assist with a short-term boost to Pakistan's current account and foreign exchange reserves as well as offer some budget support." Mr. Mitra went on to stress that sustained macroeconomic adjustments would still be needed to shore up the country's credit fundamentals. Singapore Aninda S. Mitra Vice President - Senior Analyst Sovereign Risk Unit Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308 Singapore Thomas J. Byrne Senior Vice President - Regional Credit Officer Sovereign Risk Unit Moody's Singapore Pte Ltd. JOURNALISTS: (852) 2916-1150 SUBSCRIBERS: (65) 6398-8308