S&P says Sharif win bodes well for Pak rating

Pinning hopes on significant economic reforms in Pakistan after Nawaz Sharif's victory in general elections, global agency S&P on Monday said that the development bodes well for the country's credit profile, but ruled out any upgrade from the present junk grade rating.

S&P currently has a 'B-' sovereign credit rating on Pakistan, which is a non-investment or junk grade rating and means that the country is vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.

In a statement issued here, Standard & Poor's Ratings Services (S&P) said that Pakistan's parliamentary election results set the stage for longer-term stability of its 'B-' sovereign credit rating on the country.

S&P welcomed the strong lead taken by the Pakistan Muslim League-Nawaz party (PML-N) in poll results

It said: "This is a key achievement for Pakistan's maturing democracy, in the face of general economic malaise, widespread and incessant sectarian and political violence, large-scale domestic insurgencies, and ongoing tension with neighbouring India."

S&P said that in its earlier report on Pakistan in April it had outlined its view that "timely, successful, and credible elections were essential for Pakistan to deliver a government with a reasonable chance of tackling the country's economic imbalances, including a looming balance of payments crisis. Preliminary election results indicate such an outcome.

"The elections took place on schedule, without major shortcomings that would result in a disputed outcome, and with a large voter turnout despite intimidation and bombings on election day by extremist elements.

"The 60 per cent voter turnout, compared with 44 per cent in the 2008 elections, ensures greater legitimacy for the new government," S&P said . "Moreover, the results suggest that PML-N is likely to have a lead that will enable it to form a coalition without the support of major political rivals or the minor parties."

"We believe the election outcome puts the incoming government in good stead to sew up an IMF deal soon," S&P credit analyst Agost Benard said.

"This is needed to stabilise external finances and to provide the policy framework for necessary fiscal and energy sector reforms. If successful, these efforts will underpin the continued stability of the sovereign ratings at the current 'B-' level," he added.