As Pakistan’s liquidity and fiscal policy risks continue to rise, the US-based global rating agency Fitch Ratings downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) from B- to CCC+ on Friday.
Concerns over Pakistan’s capacity to obtain funds to satisfy external financial requirements to deal with the floods, which have killed 1,700 people and caused $30 billion in economic damage, have grown in recent weeks.
Pakistan’s ability to access the global market has been hampered by its bonds suffering losses on the secondary market, ratings downgrading by Moody’s earlier this month, and prior downgrades of the country’s outlook by Fitch and S&P Global.
Fitch does not give outlooks to nations with a rating of CCC+ or worse. Fitch is one of the “Big Three” credit rating agencies, along with Moody’s and Standard & Poor.
“The downgrade reflects further deterioration in Pakistan’s external liquidity and funding conditions, and the decline of foreign exchange (FX) reserves. This is partly a result of widespread floods, which will undermine Pakistan’s efforts to rein in twin fiscal and current account deficits,” Fitch said.
The reduction “reflects our view of elevated risks of measures possibly undermining Pakistan’s IMF program and public financial support,” according to the statement.
As the new administration of Prime Minister Shehbaz Sharif advanced with reforms, the International Monetary Fund (IMF) in late August delivered $1.1 billion to Pakistan as part of a $6 billion package agreed upon in 2019.
By October 14, the State Bank of Pakistan reported that Pakistan’s liquid foreign exchange reserves were $7.6 billion, or roughly one month’s worth of current international payments (SBP).
However, SBP Governor Jameel Ahmad this month said there was “no question” about Pakistan not meeting debt repayment obligations, and financing requirements continued to be fully met.
According to him, Pakistan has already paid $4.6 billion in debt this fiscal year and will fully return the $1 billion bond in early December.