S&P says Pak vulnerable to non-payment

When compared with this, S&P had earlier this year affirmed its ‘BBB-’ long-term and ‘A-3’ short-term sovereign credit ratings on India. ‘BBB’ 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 Pakistan’s senior unsecured local currency debt has also been lowered to ‘B-’ from ‘BB-’, while the foreign currency debt rating has been lowered to ‘CCC+’ from ‘B’. The downgrade comes in the wake of continued steep erosion of Pakistan’s external liquidity position, the extent and pace of which casts rising doubts about the sovereign’s ability to meet approximately $3 billion of external debt servicing commitments in the coming year.

“Pakistan’s balance of payments is under significant and rising pressure, whereby existing structural trade imbalances are magnified by exogenous price shocks,” 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.