S&P Global Ratings Affirms Pakistan at ‘B’; Outlook Stable

S&P Global Ratings have affirmed Pakistan’s ‘B-‘ long-term and ‘B’ short-term sovereign credit ratings with a stable outlook.

According to the report”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”.

Pakistan’s GDP grew by 3.9 percent in FY 2021, exceeding the rating agency’s projections after contracting by 0.5 percent in FY 2020. This growth was driven partly by a rise in domestic demand, as the government’s targeted approach to the pandemic-induced restrictions supported economic activity and boosted real consumption and imports.

S&P Global Ratings expects Pakistan’s positive trajectory to persist on the back of an improvement in macroeconomic indicators and in the pandemic situation.

“Pakistan’s economy will continue to recover gradually as the global pandemic is progressively better contained and domestic vaccination progresses,” it said.

It also projects a GDP growth of 4.1 percent in FY 2022, backed by a rise in private consumption and investment.

S&P Global Ratings said that Pakistan has made headway in executing fiscal reforms under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) program. These include tax exemptions, higher petroleum duties, and improved administration policies.

They have helped to stabilize Pakistan’s current account and fiscal deficits, while the development of a more flexible exchange rate system has strengthened the foreign exchange reserves.

The rating agency estimates that the fiscal deficit has slipped to seven percent of the GDP in FY 2021, down from a deficit of 8.1 percent the previous year.

S&P Global Ratings forecasts a reduced deficit this year, and expects the net general government debt to grow at an average of 6.7 percent of the GDP from FY 2022 through FY 2024.

Similarly, the rating agency estimates that Pakistan’s current account deficit has eased to 0.6 percent of the GDP in FY 2021 from 4.8 percent in FY 2020. However, it expects the country’s current account deficit to deteriorate due to the rising imports and oil prices while staying below three percent of the GDP.

The rating agency also projects the country’s inflation to ease slowly to six percent in the coming years, supported by an end to the State Bank of Pakistan (SBP) policy of budget financing.

The country’s downside risks include the potential worsening of the pandemic and fragile parliamentary backing for the government, the rating agency said.

It added that “a narrow tax base and domestic and external security risks” continue to restrict ratings, as political volatility in Afghanistan increases and friction with India remains. These security challenges and a lack of physical infrastructure threaten to discourage foreign direct investment.

S&P Global Ratings’ stable outlook on Pakistan’s ratings is based on the expectation that continued donor funding and an improvement in the country’s vulnerable fiscal position will help it meet its external obligations in FY 2022. It also affirmed its ‘B-‘ long-term issue rating on Pakistan’s senior unsecured debt and Sukuk trust certificates.



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