While maintaining its ‘B-‘ Issuer Default Rating (IDR) for Long-Term Foreign-Currency (LTFC), Fitch Ratings has changed Pakistan’s Outlook from Stable to Negative.
According to the credit rating agency, Pakistan’s financial outlook has significantly deteriorated since early 2022. This unfavorable adjustment shows a serious worsening in Pakistan’s finance and foreign liquidity status.
The new staff-level agreement with Pakistan is expected to be approved by the IMF board, but Fitch Ratings sees serious risks to its implementation and long-term viability after its June 2023 expiration date. There are several difficulties in the contemporary political and economic environment.
The statement said, “As was the case in early 2018 and 2022, there is a chance that further political instability might undercut the progress the authorities have made in terms of fiscal and external adjustment. With the economy decreasing and inflation running high, this is especially concerning.
In light of the widespread protests occurring in cities around the country, it is imperative that the government accept the request of former Prime Minister Imran Khan and convene early elections.
A diverse combination of parties, with a tenuous majority in parliament, backs the new administration. Regular elections are scheduled for October 2023, raising the possibility of policy reversals following the end of the IMF program.
According to the SBP, the economy was performing above potential in FY22. As a result of fiscal and monetary tightening, rising import inflation, and a deteriorating outlook for external demand, which would also affect household and corporate confidence, we predict slower growth of 3.5 percent in FY23.