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Ongoing reforms can pave means for ‘sovereign’s B-’ ranking: Fitch

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— Reuters/File
— Reuters/File
  • “Pakistan’s recent policy adjustments, access to external financing offset rising external risks from CAD,” Fitch Rankings state.
  • Says the current-account deficit in FY22 “is set to be wider than our previous forecast of 2.2%.”
  • “If govt retains its commitment to a market-driven exchange rate, we believe this would be a useful shock absorber.”

HONG KONG: Pakistan’s recent policy adjustments and demonstrated access to external financing, as well as its commitment to a market-determined exchange rate, have offset rising external risks from a widening current-account deficit, said Fitch Ratings late on Wednesday.

In a statement, the American credit-rating agency said that keeping in view the ongoing reforms, if sustained, could create positive momentum for the “sovereign’s ‘B-’ rating, which we affirmed in May 2021 with a stable outlook.”

“Increases in global energy prices and a strong domestic recovery from the initial COVID-19 pandemic shock have put additional strains on Pakistan’s external position,” it said.

Citing the widening present account deficit (CAD), it talked about that the current-account deficit within the ongoing fiscal yr to June 2022 “is set to be wider than our previous forecast of 2.2%.”

The State Financial institution of Pakistan (SBP) on November 19, 2021, raised its coverage fee by a big 150bp to eight.75%, “pointing to rising risks related to the balance of payments and inflation,” the assertion learn.

The credit standing company mentioned: “We think external liquidity pressures should be manageable in the near term, despite the wider current-account deficit, given Pakistan’s adequate foreign-exchange reserves and success in accessing financing.”

Official reserve belongings practically doubled to $24.1 billion by the top of September 2021 from $12.6 billion two years in the past. Nonetheless, liquid foreign-exchange reserves have dropped since mid-September, which “we believe may partly reflect debt repayment.”

Fitch highlighted that Pakistan’s near-term financing efforts have been supported by Saudi Arabia, which plans to position $3 billion on deposit with the SBP and supply an extra $1.2 billion oil-financing facility underneath a one-year help package deal. Its international reserves additionally acquired a $2.8 billion enhance in August from the IMF’s one-off world allocation of Particular Drawing Rights.

“Funding from these sources followed Pakistan’s successful international debt issuance through a $2.5 billion bond in March 2021 and a follow-on $1-billion bond as part of its global medium-term note programme,” the assertion learn.

“Pakistan aims to tap debt markets more regularly through the scheme, which could reduce the costs of coming to market. The authorities also plan new sukuk issuance in 2021.”

Following a staff-level settlement on the sixth assessment of the nation’s Prolonged Fund Facility (EFF) reached on November 21, “we expect the IMF to release a further $1 billion in funding, provided certain prior actions are met.”

The American company underlined that sustained reform efforts and dedication to the IMF programme ought to help entry to exterior financing, “even with global financing conditions potentially becoming more challenging for emerging markets in 2022 as global monetary policy settings grow less accommodative.”

If the federal government retains its dedication to a market-driven trade fee, “we believe this would be a useful shock absorber to help contain external risks in the longer term.”

In reference to the final assessment, they acknowledged that at their ranking assessment in Could the company famous that continued implementation of insurance policies enough to facilitate the rebuilding of foreign-exchange reserves and easing exterior financing dangers might result in constructive ranking motion.

“We also argued that positive rating momentum could emerge from improvements in the business environment or fiscal consolidation if sustained over time,” it mentioned, including that continued adherence to the EFF reform agenda would improve the probability of attaining these outcomes, in our view. 

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