S&P Global Ratings downgraded Pakistan as the country’s external, fiscal, and economic metrics continued to deteriorate as a result of a number of shocks, including flooding and increasing inflation.
According to a statement released on Thursday, S&P downgraded Pakistan’s credit rating from B- to CCC+ and predicted that the country’s diminishing foreign reserves would continue to be under pressure in the upcoming year, just as political risks persisted.
“Pakistan’s already low foreign exchange reserves will remain under pressure throughout 2023, barring a material decline in oil prices or a step-up in foreign assistance,” S&P analysts Andrew Wood and YeeFarn Phua wrote.
The nation also confronts significant political risks that could alter its future course of policies.
The $7.8 billion in foreign bonds issued by the country are already rated by Fitch Ratings and Moody’s Investors Service at seven notches below investment grade, or the equivalent of a CCC+ rating from S&P, putting them on the level with El Salvador and Ukraine.
On Thursday, S&P changed the outlook for Pakistan from negative to stable.
With barely enough reserves to pay one month’s worth of imports, a dollar shortage, and a delay in its loan program with the International Monetary Fund, the nation is in the midst of an economic catastrophe.
Despite the payment of a $1 billion bond this month, long-term dollar bonds continue to trade at distressed levels, reflecting investors’ continued anxiety about the country’s capacity to meet its international debt commitments.
According to S&P, Pakistan’s economic and fiscal results are anticipated to be negatively impacted by this year’s devastating floods, skyrocketing food and energy prices, as well as rising global interest rates, with refinancing difficulties over the medium term.
Over 1,700 people were killed by Pakistan’s summer floods, which submerged a third of the country and reduced the country’s GDP by 50%.
The nation’s economy has suffered losses and damages of around $32 billion as a result of the floods.
The current administration has a limited amount of time to enact economic reforms because it is expected to end in August 2019 or before.
“We expect political uncertainty to remain elevated over the coming quarters, with continued pressure from the opposition to hold early elections,” the S&P analysts wrote.
The agency maintained a “stable” outlook.
To read our blog on “Dar “threatened” Moody’s investors service,” click here.
