Standard & Poor maintains Pakistan’s B- Credit Rating on Reserves Outlook

Karachi: Pakistan will be able to maintain an adequate level of foreign-exchange reserves because of funds provided by donor countries, Standard & Poor’s said as it affirmed the South Asian nation’s credit rating.

“We expect donor commitments will ensure at least an adequate level of external liquidity in the next two years,” S&P said in an e-mailed statement to Bloomberg news on Monday. The rating company maintained its B- foreign- and local-currency rating for Pakistan. The rating is six levels below investment grade.

The stable rating outlook “balances adequate external liquidity against vulnerability stemming from ongoing structural fiscal weaknesses and significant political and security risk,” S&P said. International Monetary Fund in May 2010 suspended disbursements to Pakistan after the country failed to meet conditions such as reducing budget deficit that were attached to a $11.3 billion loan. Pakistan didn’t seek a new program after the previous one expired on September 30, Bloomberg reported.

Pakistan’s foreign-exchange reserves stood at $17.2 billion as of October 24, compared with a record $18.3 billion at the end of July, according to the State Bank.

While the “current level of external liquidity is likely to diminish somewhat” after the expiry of the IMF loan program, the pledge by donor nations will help boost Pakistan’s “external liquidity,” S&P said.

Pakistan’s high public and external indebtedness and sectarian strife are preventing S&P from upgrading Pakistan’s credit rating, statement said. “The weak revenue performance also poses a direct constraint on monetary policy effectiveness, as the government is compelled to resort to borrowing from the central bank for deficit financing,” statement showed.

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