KARACHI: S&P Global Ratings has downgraded Pakistan’s credit score due to a series of shocks – from floods to soaring inflation – that have distorted the country’s external, financial and economic metrics, JEE News reported. .
According to a statement, the country’s credit score was downgraded by S&P from B- to CCC+, which is expected to put Pakistan’s dwindling foreign reserves under pressure in the coming year, just as political risks persist.
“Pakistan’s already low foreign exchange reserves will remain under pressure through 2023, barring a drop in oil prices or an increase in foreign aid,” wrote S&P analysts Andrew Wood and Yi Farn Phua.
The country also faces looming political risks that could affect its policy trajectory next year.
Fitch Ratings and Moody’s Investors Service already rate the country’s $7.8 billion in foreign bonds seven notches below investment grade, on par with S&P’s CCC+ rating, on par with El Salvador and Ukraine. S&P also raised the outlook for Pakistan to stable from negative on Thursday.
The country is facing an economic crisis with only enough reserves to cover one month’s worth of imports, a shortage of dollars and delays in its loan program with the International Monetary Fund. Investors are pessimistic about Pakistan’s ability to meet its foreign debt obligations, with long-dated dollar bonds trading at troubling levels despite a $1 billion bond repayment this month.
S&P said this year’s severe floods, rising food and energy inflation, as well as rising global interest rates, along with refinancing challenges over the medium term, will further impact Pakistan’s economic and financial results.
Unprecedented summer floods in Pakistan killed more than 1,700 people, submerged a third of the country and cut the country’s growth in half. The floods caused about $32 billion in damage and losses to the nation’s economy.
Meanwhile, the current administration is due to expire in or before August next year, meaning it has limited time to implement economic reforms.
“We expect political uncertainty to remain high in the coming quarters, with the opposition continuing to push for early elections,” S&P analysts wrote.
The agency maintained its outlook at “stable.”
