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Fitch revises Pakistan's outlook from stable to negative

"The foreign reserves are under severe pressure due to the increasing current account deficit"

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Fitch revises Pakistan's outlook from stable to negative
GNN Media: Representational Photo

New York: Fitch Ratings, an American credit rating agency, has revised and downgraded Pakistan’s outlook from stable to negative due to the significant deterioration in Pakistan’s external liquidity position and financing conditions since early 2022.

According to a report compiled by Fitch, Pakistan’s outlook has been changed due to derailing liquidity, foreign loans, and a weak government alliance, the agency said. The agency also has concerns regarding the fulfilment of the terms with the International Monetary Fund (IMF).

The foreign reserves are under severe pressure due to the increasing current account deficit, the report says. Pakistan’s current account deficit has spiked to $17 billion, which is expected to go down to $10 billion in the next fiscal year.

The inflation rate would remain high due to the global prices and scarcity of energy. Fiscal tightening, higher interest rates, and measures to limit energy consumption, and imports underpin our forecast of a narrowing CAD to $10bn (2.6% of GDP) in FY23, it added.

The staff-level agreement will potentially unlock USD4 billion in IMF disbursements to Pakistan in FY23, assuming board approval of a USD1 billion augmentation and extension to June 2023, the report added.

It further noted that Pakistan’s ‘B-’ rating reflects recurring external vulnerability, a narrow fiscal revenue base, and low governance indicator scores compared with the ‘B’ median. External funding conditions and liquidity will likely improve with the new staff-level agreement.

 

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