In a major blow to Pakistan’s financial image, the Fitch Ratings agency on Tuesday downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to ‘CCC-’, from ‘CCC+’.
According to a statement issued by the New York-based rating agency, the downgrade reflects further sharp deterioration in external liquidity and funding conditions, and the decline of foreign exchange (FX) reserves to critically low levels.
The rating agency also highlighted difficult IMF conditions, a challenging political context and funding contingent on the IMF programme as other factors for the rating downgrade.
Read more: Why Pakistan needs to think twice before accepting IMF conditions
Fitch downgrading Pakistan’s rating is concerning as it suggests that the country is managing a high risk of default on its foreign debt, with there being low chances to escape default in the near future.
“While we assume a successful conclusion of the 9th review of Pakistan’s IMF programme, the downgrade also reflects large risks to continued programme performance and funding, including in the run-up to this year’s elections,” the agency wrote.
“Default or debt restructuring is an increasingly real possibility, in our view,” it also noted.
The cut in Pakistan’s rating has sparked concern for the country’s financial image and has resulted in intense criticism of the incumbent government for failing to steer the country out of the economic crisis.
Fitch has downgraded Pakistan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC-', from 'CCC+'. Fitch Ratings also stated that in its view, default or debt restructuring is an increasingly real possibility for Pakistan. We are standing in the eye of the storm.
— Hasaan Khawar (@hasaankhawar) February 14, 2023
Fitch has downgraded two notches to CCC- with no outlook assigned. Fitch rating has priced in default. Unfortunately. Time to question PDM? https://t.co/Yrc4G7N3Hy
— Muzzammil Aslam (@MuzzammilAslam3) February 14, 2023
Fitch downgrades Pakistan foreign currency issuer default ratings IDR to CCC-.
This is as bad as it gets when it comes Pakistan’s financial image worldwide.
کیا کردیا ہے میرے مُلک کو۔ اللہُ اکبر
— Mir Mohammad Alikhan (@MirMAKOfficial) February 14, 2023
Good Morning Sir @OfficialDGISPR
Pakistan’s Credit Rating by Fitch is downgraded to CCC- !
While in March 2022: Prior to Operation Regime Change : B- ( Stable)
After RCO: Oct 2022: CCC+
Thank You for imposing incompetent and corrupt Cabal of Crooks.
— MNA (@Engr_Naveed111) February 15, 2023
Moreover, currently, Pakistan is engaged in talks with IMF for unlocking the bailout package. Pakistan has sent a Memorandum of Economic and Financial Policies (MEFP) draft to IMF which will review it as Islamabad has agreed to several conditions including increasing energy prices and improving tax collection.
In a bid to revive the $7 billion Extended Fund Facility (EFF) which has been stalled for months, the Pakistani government is likely to decide in principle to increase the sales tax as demanded by the lender. The government is likely to take a decision to bring an ordinance for the mini-budget worth Rs170 billion.
Read more: IMF urges Pakistan to end subsidies?