RPT-UPDATE 1-Moody's downgrades Pakistan on economy, politics

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By Rafael Nam and Sahar Ahmed

HONG KONG/KARACHI, May 21 (Reuters) - Moody's Investors Service lowered Pakistan's sovereign ratings on Wednesday citing economic concerns amid political uncertainty.

Moody's cut its government bond ratings to B2 from B1, or five levels below investment-grade, citing concerns over the country's fiscal position and economic policies in a volatile political environment.

The move came as little surprise. Last week, rival Standard & Poor's Ratings Services cut Pakistani sovereign debt to a B rating, also five notches below investment grade on its scale.

Pakistan's inflation is at its highest since the 1970s, the rupee is at an all-time low, while the trade and fiscal deficits have widened alarmingly.

Moody's said Pakistan's fiscal and current account deficits could surpass 7 percent of gross domestic product this year, constraining the central bank's resources and increasing inflationary pressures.

"Following a considerable period of political tumult the coalition infighting now evident is not providing the policy framework needed to stabilise macroeconomic imbalances," Moody's analyst Aninda Mitra said in a statement.

Yet despite those fears, Moody's opted to raise its outlook on Pakistan to stable from negative based on expectations that the country will receive external financial support from multi-lateral lenders.