S&P Global downgrades Pakistan's credit rating

ISLAMABAD: Following Moody and Fitch’s move, Global ratings agency S&P Global cut Pakistan’s long-term sovereign credit rating by one notch to “CCC+” from “B” to reflect a continued weakening of the country’s external, fiscal and economic metrics.

The S&P Global, in a statement, said Pakistan’s already low foreign exchange reserves will remain under pressure through 2023 unless oil prices slump or foreign assistance improves.

The country also faces elevated political risks which may affect its policy trajectory over the next year.

This year’s severe floods, surging food and energy inflation as well as rising global interest rates are also expected to depress Pakistan’s economic and fiscal outcomes, with refinancing challenges over the medium term, the report said.

The agency maintained its outlook at “stable”.

In October this year, Moody’s cut Pakistan’s sovereign credit rating by one notch to Caa1 from B3, citing increased government liquidity and external vulnerability risks, following the devastating floods that hit the country earlier this year.

The floods, caused by abnormal monsoon rains and glacial melt, have submerged huge swathes of Pakistan and killed nearly 1,700 people, most of them women and children.

The floods will also raise Pakistan’s external financing needs, raising the risks of a balance of payments crisis, according to the rating agency. Moody’s outlook on Pakistan remained unchanged at negative.

The decision to downgrade the ratings to Caa1 is driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022. The floods have exacerbated Pakistan’s liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit,” it said in a statement.

“Debt affordability, a long-standing credit weakness for Pakistan, will