S&P Global downgrades outlook on Pakistan to 'negative'

July 28, 2022 (MLN): The global ratings agency S&P on Thursday revised Pakistan's outlook to "negative" from "stable", citing risks from higher commodity prices and the country's weakening currency.

It also affirmed its 'B-' long-term and 'B' short-term sovereign credit ratings on Pakistan, as well as 'B-' long-term issue rating on the country's senior unsecured notes and Sukuk trust certificates.

Earlier this month, Moody’s Investors Service and Fitch Ratings also revised Pakistan's Outlook to Negative from Stable.

The rating agency said that Pakistan's external position is weakening owing to higher commodity prices, tighter global financial conditions, and a weakening of rupee. External resources are likely to remain under pressure even after expected disbursements from the IMF under the restored Extended Fund Facility (EFF) program.

It further said that it could lower its ratings if Pakistan's external indicators continue to deteriorate.

However, the outlook could be revised to stable if Pakistan's external position stabilizes and improves from current levels, it added.

The report underlined that evidence of improvement could include a sustained rise in foreign exchange reserves.

It further stated that Pakistan's domestic demand continues to recover, but it is now facing a new challenge in the form of rising prices, particularly for staple goods.

“Prevailing price dynamics, including costlier edible oils, fuel, electricity, and grains, are likely to hurt the pace of private consumption growth in the current fiscal year ending June 2023”, it said.

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