In another setback to Pakistan, global ratings agency Moody’s today downgraded the country’s rating to Caa3 from Caa1 as it struggles with depleting foreign exchange reserves and mounting debt levels.

It said that Pakistan’s “increasingly fragile liquidity” position has increased the default risks to a level consistent with a Caa3 rating.

“The decision to downgrade the ratings is driven by Moody’s assessment that Pakistan’s increasingly fragile liquidity and external position significantly raises default risks to a level consistent with a Caa3 rating,” it said.

However, Moody’s changed the outlook to stable from negative.

Pakistan is currently in talks with the International Monetary Fund to resume the $6.5 billion loan package.

The ratings agency said that the IMF loan programme may help to cover Pakistan’s immediate needs.

“We have to accept unwillingly the strict conditions for the IMF deal,” Pakistan Prime Minister Shehbaz Sharif earlier said as Islamabad accepted the stringent riders laid by the multilateral agency.

The IMF revived the $7 billion loan package late last year but the programme ran into uncertainty after the country’s Finance Minister Ishaq Dar reversed the policies reducing fuel prices.

Staring at a default, the cash starved country battling its worst economic crisis.

According to reports, Islamabad has asked the Accountant General of Pakistan Revenues (AGPR) to halt salaries and pensions of various federal ministries and the departments under them until further notice is issued.

Also read: As Pakistan awaits IMF loan, inflation soars amid fears of default