ISLAMABAD: Standard & Poor’s (S&P) rating agency has affirmed Pakistan’s sovereign rating and maintained the ‘stable’ long-term outlook.
The New York-based rating agency affirmed the ‘B-’ long-term and ‘B’ short-term sovereign rating, along with ‘B-’ long-term issue rating senior unsecured debt and sukuk trust certificates. It said the country’s rating remains constrained by a narrow tax base and domestic and high external security risks.
It added that although the security situation has gradually improved over recent years, the ongoing vulnerabilities weaken the government’s effectiveness and weigh on the business climate. It said the pandemic exacerbated Pakistan’s economic downturn but forecast the real GDP to recover to 1.3 percent during the current fiscal year.
The agency noted that the government had made solid progress toward important fiscal and economic reforms prior to the start of the global coronavirus outbreak, hoping the upward progress should return once the pandemic was contained.
It said the stable outlook reflected rating agency’s expectations that funding from the International Monetary Fund (IMF) and other partners, along with a recent improvement in Pakistan’s balance of payments position will be sufficient for the country to meet its considerable external obligations over the next 12 months.
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The rating agency said it may lower its “ratings if Pakistan’s fiscal, economic, or external indicators deteriorate further, such that the government’s external debt repayments come under pressure”.
However, it may raise ratings if the economy materially outperforms expectations, strengthening the country’s fiscal and external positions more quickly than forecast, but warned progress on reforms was likely to be delayed by the pandemic.
The ratings reflect the fallout of the COVID-19 pandemic on the country’s already-weak economy, considerable external indebtedness and liquidity needs and an elevated general government fiscal deficit and debt stock.
“While Pakistan had made progress toward consolidating its fiscal accounts during the first nine months of its Extended Funding Facility programme with the IMF, related imbalances have been worsened by much slower economic growth since March 2020”, it noted.
The agency noted that domestic demand remained very weak, as evident from contractions in both real consumption and imports in the fiscal year ended June 2020. The prospects for a near-term recovery have increased after strict domestic virus containment measures between March and June and amid a weaker global economic outlook.