S&P Global keeps rating at ‘CCC+’, citing reliance on foreign aid

ISLAMABAD: The Standard and Poor (S&P Global Ratings) affirmed its “CCC+” long-term sovereign credit rating...
31 Jul, 2024

ISLAMABAD: The Standard and Poor (S&P Global Ratings) affirmed its “CCC+” long-term sovereign credit rating and “C” short-term rating for Pakistan.

The outlook on the long-term rating is stable. Our transfer and convertibility assessment remains at “CCC+”, says the ratings agency.

It further stated that the stable outlook balances the risks to Pakistan’s external liquidity position and fiscal performance over the next 12 months against the prospect of continued support from multilateral and bilateral partners.

“We could lower our ratings if Pakistan’s external indicators deteriorate rapidly or fiscal deficits widen to exceed the domestic banking system’s financing capacity, to the extent that the government’s willingness or ability to service its commercial debt is diminished.

One potential indication of domestic financing stress would be further increases in the government’s interest burden, which we estimate will exceed 45 per cent of government revenues over the next few years”, it added.

Conversely, we may raise our ratings if Pakistan’s external and fiscal positions improve materially from current levels. Signs of improvement could include a sustained rise in foreign exchange reserves, as well as a reduction of Pakistan’s debt-service costs relative to revenues and a lengthening of debt maturities, the S&P global added.

REUTERS ADDS: S&P Global affirmed Pakistan’s long-term sovereign credit rating at “CCC+” on Tuesday, citing the country’s dependence on external aid to meet its debt obligations amid a prolonged economic crisis. The country struck a $7 billion bailout deal with the International Monetary Fund earlier this month to stabilize the economy after getting on the brink of a sovereign default.

The latest pact with the IMF included tough steps like raising tax on farm income, emphasizing the need to boost government revenue and trim fiscal deficit.

Pakistan is also in talks with Saudi Arabia, the United Arab Emirates and China to meet gross financing needs under the IMF programme.

While near-term default risks have eased, the ratings agency said strong foreign fund inflows and moderate current account deficits would likely be required to restore Pakistan’s external buffers.

“Persisting inflationary pressures, coupled with modest economic activity, continue to complicate the implementation of measures to consolidate the government’s wide fiscal deficit,” it said. S&P warned that a difficult political backdrop may slow down economic growth, stressing the need for a stable political climate to repair Pakistan’s creditworthiness.

Copyright Business Recorder, 2024

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