Fitch Ratings has revised Pakistan’s Outlook to Negative from Stable while affirming its Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B-‘.
The credit rating agency has announced that Pakistan’s financial outlook has taken a significant turn for the worse since early 2022. This negative change reflects a significant deterioration in Pakistan’s external liquidity position and financing conditions.
Fitch Ratings believe that the IMF board will approve Pakistan’s new staff-level agreement, but see significant risks to the implementation and sustainability of the programme after it expires in June 2023. The current economic and political climate presents considerable challenges.
There is a possibility that renewed political instability could undermine the progress the authorities have made in terms of fiscal and external adjustment, as was the case in early 2018 and 2022, the statement continued. This is of particular concern in the current climate of slowing growth and high inflation.
It is essential that the government heeds the call of former Prime Minister Imran Khan and holds early elections in light of the large-scale protests taking place in cities throughout the nation.
The new government is supported by a disparate coalition of parties with only a slim majority in parliament. Regular elections are due in October 2023, creating the risk of policy slippage after the conclusion of the IMF program.
The SBP estimates that the economy was operating above potential in FY22, and we forecast slower growth of 3.5 percent in FY23 amid fiscal and monetary tightening, high imported inflation, and a weaker external demand outlook, all of which will also hit household and business confidence.
