S038;P says Pak vulnerable to non-payment

Global rating firm Standard Poor8217;s has lowered its long-term foreign currency sovereign credit rating on Pakistan...

Global rating firm Standard 038; Poor8217;s has lowered its long-term foreign currency sovereign credit rating on Pakistan to 8216;CCC8217; from 8216;B8217; and its long-term local currency rating to 8216;B-8217; from 8216;BB-8217;. It also lowered short-term rating on the sovereign to 8216;C8217; from 8216;B8217;. The outlook on the long-term rating is negative.

An obligation rated 8216;CCC8217; is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment.

When compared with this, S038;P had earlier this year affirmed its 8216;BBB-8217; long-term and 8216;A-38217; short-term sovereign credit ratings on India. 8216;BBB8217; exhibits adequate protection parameters but adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation. The rating on Pakistan8217;s senior unsecured local currency debt has also been lowered to 8216;B-8217; from 8216;BB-8217;, while the foreign currency debt rating has been lowered to 8216;CCC8217; from 8216;B8217;. The downgrade comes in the wake of continued steep erosion of Pakistan8217;s external liquidity position, the extent and pace of which casts rising doubts about the sovereign8217;s ability to meet approximately 3 billion of external debt servicing commitments in the coming year.

8220;Pakistan8217;s balance of payments is under significant and rising pressure, whereby existing structural trade imbalances are magnified by exogenous price shocks,8221; said credit analyst Agost Benard.

Net foreign reserves of the central bank have fallen 67 per cent to just 4.7 billion since October 2007, as the country recorded an overall balance of payments deficit of 5.7 billion for fiscal year 2008 ended June. For the first two months of fiscal 2009, the overall balance of payment deficit expanded more than sixfold year on year to nearly 2.5 billion, with the current account shortfall reaching 1.6 per cent of GDP against a full-year target of 6.0 per cent.