S&P affrirms B-rating to Pakistan, outlook stable

Standard & Poor's, the credit rating agency, has maintained its B- rating on Pakistan's long-term sovereign debt and kept a stable outlook, helped by improved external liquidity of the south Asian nation.

The IMF had to rescue Pakistan from a deep financial crises in 2008, through a $11.3 billion package. The country has received $7.27 billion under the plan so far.

S&P, however, said it could lower ratings if major slippages in policy occur, resulting in renewed balance of payments difficulties or rising public debt trajectory.

"The ratings affirmation takes into account Pakistan's improved external liquidity position, which was largely due to the International Monetary Fund standby loan agreement and other bilateral and multilateral support," said Agost Benard, credit analyst at S&P.

At a recent meeting with Pakistan government, the IMF urged them to implement a new general sales tax law and speed up fiscal reforms to boost revenue to cut increasing fiscal deficit.

"This credit strength is weighed against the sovereign's high public and external leverage, political and security risks, and fiscal inflexibility due to an exceedingly narrow tax base," Benard said.

Pakistan's already ailing economy, due to domestic violance and lack of business environment, witnessed a major blow after devastating floods this year, which swamped a large part of the country and killed thousands, damaging infrastructure.

The government estimated losses from the unprecedented floods could mount to $ 43 billion, forcing it to lean heavily on aid from friendly countries and multilateral donor agencies such as the IMF, World Bank and the Asian Development Bank to speed up rehabilitation and reconstruction work.

But if the government was able to sustain its plans for economic stabilization and fiscal consolidation, it could lift the ratings.

The rating agency also affirmed its C rating on the country's short-term credit and B- issue rating on its senior unsecured local currency as well as foreign currency debts.
 
Standard & Poor's Ratings Services affirmed its 'B-' long-term and 'C' short-term sovereign credit rating on the Islamic Republic of Pakistan. The outlook on the long-term rating is stable.

Standard & Poor's also affirmed its 'B-' issue rating on Pakistan's senior unsecured local-currency debt and the transfer and convertibility (T&C) rating of 'B-'.

Likewise, we affirmed the 'B-' issue rating on the sovereign's senior unsecured foreign-currency debt, as well as its recovery rating of 3, which denotes our expectation of a meaningful recovery of 60%-70% in the event of a distressed debt exchange or payment default.

"The ratings affirmation takes into account Pakistan's improved external liquidity position, which was largely due to the International Monetary Fund (IMF) standby loan agreement and other bilateral and multilateral support," said Standard & Poor's credit analyst Agost Benard.

"This credit strength is weighed against the sovereign's high public and external leverage, political and security risks, and fiscal inflexibility due to an exceedingly narrow tax base," he said.

We could lower the ratings if major slippages in policy occur, resulting in renewed balance of payments difficulties or rising public debt trajectory. Conversely, we could raise the ratings if Pakistan is able to sustain its macroeconomic stabilization program and fiscal consolidation efforts—indicated by moderating fiscal deficit and a steady reduction in public debt.