KARACHI: After Moody’s and Fitch, the S&P Global Ratings on Thursday revised the outlook for Pakistan’s long-term ratings from stable to negative.
The S&P confirmed its ‘B-‘ long-term and ‘B’ short-term sovereign credit ratings for Pakistan, as well as ‘B-‘ long-term issuance rating for the country’s senior unsecured bonds and Sukuk Trust Certificates.
Pakistan’s external position is weakening against a background of higher commodity prices, tighter global financial conditions and a weakening rupee, the agency said.
The agency said it could downgrade its ratings if Pakistan’s external indicators deteriorate further, but the outlook could be revised to stable if its external position stabilizes and improves.
Evidence of improvement could be a continued rise in usable foreign exchange reserves. Pakistan’s domestic demand continues to recover and now faces a new challenge in the form of rising prices, especially for basic goods, the agency said.
Prevailing price dynamics, including more expensive edible oils, fuel, electricity and grains, are likely to hurt the pace of private consumption growth in the current fiscal year ending June 2023, the agency said.
“The Pakistani government has significant external indebtedness and liquidity needs, and a high government budget deficit and debt,” it said.
“The prevailing price dynamics, including more expensive edible oils, fuel, electricity and grains, are likely to hurt the pace of private consumption growth in the current fiscal year ending June 2023,” it said.
The S&P said Pakistan’s domestic demand continues to recover but now faces a new challenge in the form of rising prices, especially for basic goods.
“While the impact of these more difficult macroeconomic conditions has been mitigated in part by several reform initiatives taken by the government in recent years, the risk of a continued deterioration in key metrics, including external liquidity, is increasing,” the agency said.
“However, the current inflationary environment complicates the implementation of such policies. Achieving a primary budget surplus and increasing the stock of foreign exchange reserves will also be more difficult for the government against the current external backdrop,” the agency said.
The S&P said that with the parliamentary elections in August 2023, political uncertainty will remain high in the coming quarters.
It said that while Pakistan’s security situation has gradually improved in recent years, persistent vulnerabilities are weakening the effectiveness of the government and weighing on the business environment.
Published in Dawn, July 29, 2022