Global ratings agency Fitch cut Pakistan’s sovereign credit rating from CCC+ to CCC-, citing deterioration in external liquidity and funding conditions, and the decline of foreign-exchange reserves to critically low levels. “While we assume a successful conclusion of the 9th review of Pakistan’s IMF (International Monetary Fund) program, the downgrade also reflects large risks to continued program performance and funding, including in the run-up to this year’s elections. Default or debt restructuring is an increasingly real possibility, in our view,” said the international agency.
Pakistan’s Sovereign Credit Rating Downgraded for the Second Time
The global rating agency has downgraded Pakistan’s sovereign rating for the second time since October 2022, when it was downgraded from B- to CCC+. The development came as Pakistan fails to strike a deal with the IMF and the visiting delegation departed from Islamabad after 10 days of talks; however, negotiations continue as the country is in dire need of the cash as it battles its worst economic crisis.
“While we assume a successful conclusion of the 9th review of Pakistan’s IMF program, the downgrade also reflects large risks to continued program performance and funding, including in the run-up to this year’s elections,” Fitch Ratings said in a report. In other news, the rating agency also forecasted a modest recovery during the remainder of FY23 due to anticipated inflows and the recent removal of the exchange rate cap.
How Can Pakistan Improve its Ratings?
According to the rating agency, Pakistan can improve its ratings by following these three factors:
• Implementation of an effective policy stance to address external imbalances and rebuilding of foreign exchange reserves;
• Sustained fiscal consolidation sufficient to reduce debt over time; and
• Improved export and growth prospects.
Also read: S&P Downgrades Pakistan’s Outlook to Negative Due to Free-fall of Rupee