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Fitch’s downgrading rattles Pakistan’s stock market

Near the end of the session, the benchmark index was hanging around 40,327.26, a decline of 1,039.85 points or 2.51 percent, with selling seen across all sectors.

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After downgrading the outlook of Pakistan from stable to negative by the Fitch Ratings amid political uncertainty, the benchmark index was down over 1,000 points in intra-day trading on Tuesday.

Near the end of the session, the benchmark index was hanging around 40,327.26, a decline of 1,039.85 points or 2.51 percent, with selling seen across all sectors.

The drop followed Monday’s, when the benchmark KSE-100 Index fell almost 700 points amid fresh political uncertainty following the Punjab by-elections.

Fitch Ratings lowered Pakistan’s outlook from stable to negative on Tuesday, citing the country’s notable deterioration in external liquidity and financing conditions since the beginning of 2022.

Read more: Pakistan’s outlook lowered from stable to negative: Fitch Ratings

Fitch expressed its view that although International Monetary Fund (IMF) board approved Staff-level agreement but there are substantial risks to its execution and sustained access to financing after the program’s expiration in June 2023 amid tough economic and political environment.

Also, Moody’s Investors Service downgraded Pakistan’s outlook from stable to negative, citing the country’s increased external vulnerability risk and uncertainty about the sovereign’s ability to obtain more external funding to meet its needs.

Moody’s declaration, however, came while talks with the IMF were still ongoing. The IMF did achieve a staff-level agreement with Pakistan authorities last week.

It was hoped that reaching Staff-level agreement would regain investors’ confidence but it could not be achieved. Fahad Rauf, Head of Research at Ismail Iqbal Securities Limited said, ““Despite reaching a staff-level agreement with the IMF last week, investor confidence has not returned.”

He added that the downgrade by ratings agencies indicates investors are seeing political instability ahead, particularly when it comes to the government taking fiscal consolidation measures.

In the current economic and political scenario, wise decisions and resumption of IMF program are the needs of the country. In addition, rapidly depreciating currency has also impacted the PSX.