Pakistan (Commonwealth Union)_ According to reports, S&P Global Ratings has lowered Pakistan’s credit rating owing to a series of shocks, including floods and rising inflation, that have weakened the country’s external, financial, and economic parameters. According to a statement, Pakistan’s credit rating was reduced from B- to CCC+ by S&P, which predicts that the country’s diminishing foreign reserves would continue under pressure in the next year, similar to the persisting political concerns.
According to the statement from the S&P analysts, Andrew Wood and YeeFarn Phua, “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”. In addition, the nation also confronts increased political challenges that may impact its policy trajectory in the coming year. Fitch Ratings and Moody’s Investors Service have already categorized the country’s $7.8 billion in foreign bonds at seven notches below investment grade, which is equal to S&P’s CCC+ rating and is similar to El Salvador and Ukraine. S&P also upgraded the outlook for Pakistan from negative to stable.
The country is also experiencing an economic disaster, with barely enough reserves to cover one month of imports, lack of dollar reserves, and a delay in its loan program with the International Monetary Fund. Despite this month’s payment of a $1 billion bond, investors are gloomy about Pakistan’s capacity to meet its international debt commitments, since long-term dollar bonds continue to trade at shocking prices. According to S&P, this year’s devastating floods, rising food and energy prices, and increasing global interest rates would further impact Pakistan’s economic and financial performance, creating medium-term refinancing issues.
The disastrous summer floods in Pakistan claimed almost 1,700 lives, flooded one-third of the country, and paused the country’s economic development. Moreover, the floods have caused around $32 billion in economic damages and losses. Further, the present government will leave in August 2023 or early, which indicates that there is little time left for economic changes. The S&P analysts added, “We expect political uncertainty to remain elevated over the coming quarters, with continued pressure from the opposition to hold early elections.”
