Fitch revises Pakistan’s outlook to negative, affirms at ‘B-‘
2022.07.19 13:01
FILE PHOTO: The Fitch Ratings logo is seen at their offices at Canary Wharf financial district in London,Britain, March 3, 2016. REUTERS/Reinhard Krause
By Syed Raza Hassan, Akriti and Sharma
KARACHI, Pakistan (Reuters) -Ratings agency Fitch on Tuesday revised its outlook on Pakistan to negative from stable, citing deterioration in the country’s external liquidity position and financing conditions as well as risks from renewed political volatility.
Fitch, however, affirmed Pakistan’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at “B-“.
Fitch noted that the International Monetary Fund (IMF) board was likely to approve a resumption in bailout payments, but added there were considerable risks to programme implementation and to Pakistan’s continued access to external finances after June 2023.
Ratings agency Moody’s (NYSE:MCO) changed Pakistan’s outlook to negative from stable on June 2..
Pakistan has been facing economic turmoil, with fast depleting foreign reserves, a declining currency and widening fiscal and current account deficits.
The economic meltdown has been compounded by political instability and a delay in resumption of the IMF bailout since a new government of Prime Minister Shehbaz Sharif took over from ousted premier Imran Khan in April.
The Pakistani rupee fell heavily against the U.S. dollar, losing nearly 6 rupee early on Tuesday to 122 per dollar in interbank trading.
The rupee is especially under pressure due to the falling reserves and delay in foreign inflows from the IMF and other sources, Fahad Rauf, head of research at Ismail Iqbal Securities, told Reuters.
Reserves have fallen as low as $9.8 billion, hardly enough to pay for 45 days of imports.
“If Pakistan is able to maintain fiscal and monetary discipline, the health of the economy would improve and an outlook upgrade would follow,” Rauf said.
Fitch said the political volatility could undermine the fiscal and external adjustment, especially in the current environment of slowing economic growth and high inflation, which stood at 21.3% in June.
Pakistan’s central bank has already pushed policy interest rates to 15%. It forecasts gross domestic product growth in the 2022-23 financial year at between 3% and 4%, less than the government’s budget estimate of 5%.
The IMF reached a staff-level agreement with Pakistan last week to pave the way for disbursement of $1.17 billion. If this is approved by the board, the scope of the original $6 billion bailout agreed in 2019 will rise to $7 billion.
