Fitch Ratings downgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to “CCC+” from “B-,” which analysts say does not signal well for the country’s recovery from mega floods as the economy of the nation continues to confront challenges from all directions.?
The business claims that sovereign states with a grade of “CCC+” or lower do not normally receive outlooks.?
The primary factors that contributed to a downgrading, according to the agency, were increasing liquidity and policy concerns.?
According to Fitch Ratings, “The downgrade reflects continuing deterioration in Pakistan’s external liquidity and funding constraints, as well as the decrease of foreign exchange reserves.”?
This is in part due to extensive flooding, which will make it harder for Pakistan to control its twin fiscal and current account deficits.?
The downgrade “also reflects our view of elevated risks of measures potentially weakening Pakistan’s IMF program and official financial support,”.?
It stated that the State Bank of Pakistan (SBP) has approximately $7.6 billion in foreign exchange reserves as of October 14; this amount is sufficient to fund about a month’s worth of current external payments.?
Further, Fitch also highlighted that the forex reserves had tumbled from over $20 billion at the end of August 2021.?
The credit rating agency stated that “falling reserves reflect large, although diminishing?current account deficits (CADs), external debt repayments, and earlier foreign exchange interventions by the SBP.”?
According to the rating agency, reserves had been declining every week since the IMF disbursed $1.2 billion in the week of September 2 after the completion of the seventh and eighth reviews of Pakistan’s Extended Fund Facility (EFF) before stabilizing in the week of October 14.?
Pakistan External Deficits?