ISLAMABAD: Fitch, the international credit rating agency today downgraded Pakistan’s credit outlook to ‘negative’ from stable previously. It also affirmed Islamabad’s long-term foreign-currency (LTFC) issuer default rating (IDR) at ‘B-’.
Fitch said that the outlook revision reflects the significant deterioration in Pakistan’s external liquidity position and financing conditions since early 2022 – i.e. the growing balance of payment crisis and foreign exchange reserves falling dangerously low.
The rating comes even though Islamabad had agreed to a staff-level agreement with the International Monetary Fund (IMF) last week.
“We assume IMF board approval of Pakistan’s new staff-level agreement with the IMF, but see considerable risks to its implementation and to continued access to financing after the program’s expiry in June 2023 in a tough economic and political climate,” the rating agency explained, casting doubts that Pakistan will have a tough time implementing the IMF program and even if it does, it won’t solve its monetary issues.
Political volatility
The agency also identified growing political risks in the country as a factor in the rating.
“Renewed political volatility cannot be excluded and could undermine the authorities’ fiscal and external adjustment, as happened in early 2022 and 2018,” the agency said, adding that the current environment of slowing growth and high inflation will only add to volatility.
“Former prime minister Imran Khan, who was ousted in a no-confidence vote on April 10, has called on the government to hold early elections and has been organizing large-scale protests in cities around the country,” the agency said, adding, “The new government is supported by a disparate coalition of parties with only a slim majority in parliament.”
With elections not due until October 2023, it will create the risk of “policy slippage” after the conclusion of the IMF program.
