PAKISTAN: S&P downgrades credit rating

05 June 1998
NEWS

The US ratings agency Standard & Poor's (S&P) on 22 May put two of its Pakistan ratings on CreditWatch with negative implications, affecting about $750 million of rated debt. The rates are S&P's single B+ long-term currency issuer credit, its single B short-term foreign currency issuer rating and senior unsecured rating.

S&P said that the CreditWatch action reflects Pakistan's precarious external financial position, which is vulnerable to sanctions the US and others could impose in response to Pakistan's nuclear tests following tests conducted by India in mid-May. Pakistan's total reserves at the end of March stood at $1,300 million, equal to only two months of imports. The country's private sector obligations maturing over the next 12 months, including non-resident foreign currency deposits, are more than twice liquid reserves.

The country is heavily dependent on disbursement of more than $1,000 million of a three-year, $1,560 million IMF relief package. 'With a current account deficit of about $3,500 million, or 5 per cent of gross domestic product (GDP), a slowdown of these disbursements resulting from external sanctions is likely to intensify existing balance of payments pressure,' S&P said.

The agency expects to resolve the CreditWatch listing within three months. 'The rating would not be lowered if the government's economic policies remain broadly on track and the country's access to external funds remains unchanged,' it said.

If Pakistan launches a nuclear test that leads to international financial sanctions, S&P will focus on the probable severity and duration of the sanctions, as well as on government policies, which might limit their impact. 'Pakistan's foreign currency credit rating would remain in the single B category if a downgrade occurs,' S&P said.

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