KARACHI: Fitch Ratings has downgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to “CCC-” from “CCC+”, statement from agency said. Downgrade reflects further sharp deterioration in external liquidity and funding conditions and decline of foreign exchange reserves to critically low levels.

Falling reserves reflect large, albeit declining, current account deficits (CADs), external debt servicing, and earlier FX intervention by central bank, particularly in 4Q22, when an informal exchange-rate cap appears to have been in place, statement mentioned.

“We expect reserves to remain at low levels, though we do forecast modest recovery during remainder of FY23, due to anticipated inflows and recent removal of exchange rate cap.”

Rating agency said that while it assumes successful conclusion of ninth review of Pakistan’s International Monetary Fund programme, downgrade also reflects large risks to continued programme performance and funding, including in run-up to this year’s elections. “Default or debt restructuring is an increasingly real possibility, in our view,” rating agency said.

Agency added that external public-debt maturities in remainder of fiscal year ending June 2023 (FY23) amount to over $ 7 billion and would remain high in FY24. SAFE deposits are scheduled to mature in two instalments-$ 2 billion in March and $ 1 billion in June.

Published in The Daily National Courier, February, 15 2023

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