S&P Global Ratings confirms Pakistan’s long-term and ‘B’ dominant credit rating with a strong outlook.
According to the report, “The ranking on Pakistan reflects its rapid economic recovery, which includes the epidemics, stability and external liquidity requirements of Cove 19, and the sustainability of the general government’s growing fiscal deficit and debt reserves. Is in danger. Pakistan is making steady progress to strengthen its financial and external weaknesses.
Pakistan’s GDP grew by 3.9 percent in FY 2021, exceeding the rating agency’s projections after contracting by 0.5 percent in FY 2020. This growth was driven partly by a rise in domestic demand, as the government’s targeted approach to the pandemic-induced restrictions supported economic activity and boosted real consumption and imports.
S&P Global Ratings expects Pakistan’s positive trajectory to persist on the back of an improvement in macroeconomic indicators and in the pandemic situation.
“Pakistan’s economy will continue to recover gradually as the global pandemic is progressively better contained and domestic vaccination progresses,” it said.
It also projects a GDP growth of 4.1 percent in FY 2022, backed by a rise in private consumption and investment.
S&P Global Ratings said that Pakistan has made headway in executing fiscal reforms under the International Monetary Fund’s (IMF) Extended Fund Facility (EFF) program. These include tax exemptions, higher petroleum duties, and improved administration policies.
They have helped to stabilize Pakistan’s current account and fiscal deficits, while the development of a more flexible exchange rate system has strengthened the foreign exchange reserves.
The rating agency also projects the country’s inflation to ease slowly to six percent in the coming years, supported by an end to the State Bank of Pakistan (SBP) policy of budget financing.
The country’s downside risks include the potential worsening of the pandemic and fragile parliamentary backing for the government, the rating agency said.
It added that “a narrow tax base and domestic and external security risks” continue to restrict ratings, as political volatility in Afghanistan increases and friction with India remains. These security challenges and a lack of physical infrastructure threaten to discourage foreign direct investment.
S&P Global Ratings’ stable outlook on Pakistan’s ratings is based on the expectation that continued donor funding and an improvement in the country’s vulnerable fiscal position will help it meet its external obligations in FY 2022. It also affirmed its ‘B-‘ long-term issue rating on Pakistan’s senior unsecured debt and Sukuk trust certificates.