Fitch Ratings has downgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from “CCC” to “CCC-.”
According to a statement released on Tuesday, the downgrading results from the external liquidity and funding conditions continuing to deteriorate fast, in addition to the severely low foreign exchange reserves.
According to the statement, diminishing reserves are due to considerable, albeit declining, current account deficits (CADs), external debt service, and earlier FX intervention by the central bank, particularly in 4Q22, when an apparent informal exchange-rate cap existed.
The downgrading also reflects considerable risks to sustained program performance and funding, notably in the run-up to this year’s elections, according to the rating agency, which assumes a successful conclusion of Pakistan’s International Monetary Fund (IMF) program’s ninth review.
The rating agency noted that “default or debt restructuring is a risk that is growing in likelihood.”
The agency also warned that foreign public-debt obligations in the remaining months of the fiscal year (FY23) that ends in June 2023 total over $7 billion and will remain considerable in FY24.
The remaining $7 billion for FY23 consists of $3 billion in deposits held with China’s State Administration of Foreign Exchange (SAFE), which Fitch expects to be renewed, and $1.17 billion in loans held with Chinese commercial banks, which Fitch also expects to be refinanced soon.
Two maturities are anticipated for the SAFE deposits: $2 billion in March and $1 billion in June.
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