S&P Global affirms Pakistan 'B-/B' Ratings

Pakistan’s economy is gradually recovering from its pre-pandemic and the subsequent COVID-19 shock and its ongoing reform efforts should support a continued stabilization of Pakistan’s fiscal and external metrics, though vulnerabilities remain elevated

KARACHI: S&P Global Ratings Monday affirmed its ‘B-‘ long-term and ‘B’ short-term sovereign credit ratings on Pakistan. The outlook for the long-term rating is stable.

S & P Global Rating also affirmed our ‘B-‘ long-term issue rating on Pakistan’s senior unsecured debt and sukuk trust certificates.

The rating agency said, “Pakistan’s economy is gradually recovering from its pre-pandemic and the subsequent COVID-19 shock and its ongoing reform efforts should support a continued stabilization of Pakistan’s fiscal and external metrics, though vulnerabilities remain elevated.”

It further said, “Multilateral and official funding will remain critical to Pakistan’s external debt sustainability.

“We affirmed our ‘B-‘ long-term and ‘B’ short-term sovereign credit ratings on Pakistan,” the Rating agency said.

It further said that the stable outlook reflects our expectations that funding from key bilateral and multilateral partners, along with the 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.

S & P Global outlook

The stable outlook reflects our expectations that continued recovery will help stabilize the fiscal and debt metrics, donor and partner financing will ensure that Pakistan can meet its external obligations over the next 12 months, and that the country will continue to roll over its commercial credit lines.

Downside scenario

We may lower our ratings if Pakistan’s fiscal or external indicators deteriorate well beyond their current levels. Downward pressure on the ratings would emerge if financial support from bilateral and multilateral partners quickly erodes, or usable foreign exchange reserves fall substantially to levels indicating distress in servicing Pakistan’s external debt obligations, the agency said.

Upside scenario

Conversely, we may raise our ratings on Pakistan if the economy materially outperforms our expectations, strengthening the country’s fiscal and external positions more quickly than forecast.

RATIONALE

The ratings on Pakistan reflect its nascent economic recovery amid the enduring risk of the COVID-19 pandemic, stable but considerable external indebtedness and liquidity needs, and an elevated general government fiscal deficit and debt stock. Pakistan continues to make gradual progress toward consolidating its fiscal and external vulnerabilities.

Institutional and economic profile: Economic recovery on increasingly solid footing despite lingering pandemic risks

— Pakistan’s economy is recovering from a steep pre-pandemic decline and the subsequent COVID-19-driven shock.

— We expect Pakistan’s recent improvement in growth momentum to endure, bringing its long-term performance more in line with global peers.

— The government has adopted key reforms to stabilize its vulnerable fiscal position. Pandemic risks and political realities may temper further progress.

Pakistan’s real GDP expanded more than we expected, at 3.9% in fiscal 2021 (ended June 2021), as activity began to normalize following a pandemic-driven 0.5% contraction in fiscal 2020. Domestic demand in the economy is recovering, as shown from a pick-up in both real consumption and imports in the fiscal year. The government’s more calibrated and targeted approach to COVID-19 containment measures contrasts with the stricter lockdown implemented in the fourth quarter of fiscal 2020, supporting the resumption of economic activity.