S&P retains Pakistan's B- credit rating

Credit rating agency Standard & Poor's has rated Pakistan as B negative, citing the country's low-income economy, high public and external debt.

Pakistan's low-income economy, high public and external debt, structural fiscal weaknesses and significant political and security risks remain rating constraints, S&P said in a statement.

Observing that Pakistan continues to have donor support and adequate external liquidity, S&P affirmed the 'B-' long-term and 'C' short-term foreign and local currency sovereign ratings on Pakistan.

"The stable outlook reflects adequate external liquidity, supported by donor commitments," it said.

"The ratings affirmation take into account Pakistan's low income level, high public and external leverage, political and security risks, and fiscal inflexibility due to an exceedingly narrow tax base," S&P's credit analyst Agost Benard said.

These constraints are balanced against an adequate external liquidity position— largely due to the earlier IMF standby loan agreement and donor support, Benard said.

"In addition, 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 the expectation of a meaningful recovery of 50-70% in the event of a distressed debt exchange or payment default," the credit rating agency said.

Noting that Pakistan's high public and external indebtedness is a rating constraint, S&P said it estimates Pakistan's net general government debt at 50% of GDP in 2011, and about 40% of it is external debt.

Although the debt-to-GDP ratio has fallen from 74% a decade ago, this was mostly due to debt forgiveness and high nominal GDP growth due to double-digit inflation in the past four years, Benard said.