ISLAMABAD – *Fitch Ratings unveil Pakistan’s longterm foreign currencydefault ratings.*
Fitch Ratings, the American credit rating agency has affirmed Pakistan’sLong-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with aStable Outlook.
The ‘B-‘ rating reflects a challenging external position characterised by ahigh external financing requirement and low reserves, weak public financesincluding large fiscal deficits and a high government debt-to-GDP ratio,and weak governance indicators, said Fitch on Monday.
The agency said that progress is being made towards strengthening externalfinances and positive steps have been made on the fiscal front, butconsiderable risks remain.
“External vulnerabilities have been reduced over the past year as a resultof policy actions by the authorities and financing unlocked through an IMFprogramme, which have narrowed the current account deficit and supported amodest rebuilding of reserves. Still, external finances remain fragile withrelatively low foreign-exchange reserves in the context of an elevatedexternal debt repayment schedule and subdued export performance,” thereport said.
The report revealed that Pakistan’s liquidity ratio is 111.4 percent, muchweaker than the historic ‘B’ median of 161.2pc.
Fitch Forecasts:
Read Top Stories
The agency forecasts a further narrowing of the current account deficit to2.1pc of GDP in the year ending June 2020 (FY20) and 1.9pc in FY21, from4.9pc in the last fiscal year. Import compression remains the predominantdriver of the narrowing deficit, facilitated by a depreciation of the rupeeagainst the US dollar of around 30pc since December 2017 and tightermonetary conditions. Exports are forecast to grow modestly from a low base.
SBP flexible exchange rate
The State Bank of Pakistan’s (SBP) adoption of a more flexible exchangerate last May and capital inflows are also supporting a rebuilding offoreign-exchange reserves. Fitch expects gross liquid foreign-exchangereserves rise to around USD11.5 billion by FYE20, from USD7.2 billion atFYE19.
The SBP has also reduced its net forward position by over USD3 billionsince June, contributing to a considerable improvement in its netforeign-exchange reserves, although these remain negative. We expectcontinued adherence to the new exchange rate regime to help rebuildforeign-exchange reserves and improve external resilience.
