Pakistan was downgraded by S&P Global Ratings as a series of shocks from flooding to surging inflation caused the nation’s external, fiscal and economic metrics to further deteriorate.
The nation’s credit score was cut by a notch to CCC+ from B- by S&P, which expects Pakistan’s dwindling foreign reserves to remain under pressure in the coming year, just as political risks linger, according to a Thursday statement.
“Pakistan’s already low foreign exchange reserves will remain under pressure throughout 2023, barring a material decline in oil prices or a step-up in foreign assistance,” S&P analysts Andrew Wood and YeeFarn Phua wrote.
The country also faces significant political risks that could alter its future direction of policies.
The $7.8 billion in foreign bonds issued by the country are already rated by Fitch Ratings and Moody’s Investors Service at seven notches below investment grade, or the equivalent of a CCC+ rating from S&P, putting them on a level with El Salvador and Ukraine. On Thursday, S&P changed the outlook for Pakistan from negative to stable.
According to S&P, Pakistan’s economic and fiscal outcomes are projected to be negatively impacted by this year’s devastating floods, skyrocketing food and energy prices, and rising global interest rates, with refinancing issues over the medium term.
Over 1,700 individuals were killed by Pakistan’s summer floods, which flooded a third of the country and reduced the country’s GDP by 50%. The nation’s economy has suffered losses and damages of around $32 billion as a result of the floods.
Meantime, the current administration is set to end by August of next year or earlier, meaning it has limited time to implement economic reforms.
“We expect political uncertainty to remain elevated over the coming quarters, with continued pressure from the opposition to hold early elections,” the S&P analysts wrote.