Fitch sees considerable risks to its implementation of IMF program.
Fitch Ratings on Tuesday revised Pakistan’s Outlook to Negative from Stable while affirming its Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B-’.
The revision of the outlook to Negative reflects a significant deterioration in Pakistan’s external liquidity position and financing conditions since early 2022.
Fitch assumes IMF board approval of Pakistan’s new staff-level agreement with the IMF but sees considerable risks to its implementation and to continued access to financing after the program’s expiry in June 2023 in a tough economic and political climate.
With regards to political risks, the rating agency is of the view that renewed political volatility cannot be excluded and could undermine the authorities’ fiscal and external adjustment, as happened in early 2022 and 2018, particularly in the current environment of slowing growth and high inflation.
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According to the estimations put forth by Fitch, the CAD reached $17bn (4.6% of GDP) in FY22, driven by soaring global oil prices and a rise in non-oil imports boosted by strong private consumption. Fis
cal 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.
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.