July 4, 2003	Friday	Jumadi-ul-Awwal 3,1424

ISLAMABAD, July 3: Standard & Poor’s Ratings Services on Thursday assigned its ‘BB-’ long-term local currency senior unsecured debt rating to three Pakistan Investment Bonds (PIBs) worth Rs31.2 billion (US$540 million) issued recently.

However, it warned that thin parliamentary majority enjoyed by the government and current imbroglio over legal framework order (LFO) posed risks to the reform agenda and Pakistan’s credit rating in the future.

It said: “The government’s reform agenda could be affected by the current stalemate in parliament over the Legal Framework Order if it is to persist further.”

With its slim parliament majority, the government will find it difficult to push through unpopular policies without compromise, thereby slowing the pace of structural reform, and consequently could pose some risks to Pakistan’s credit standing, it added.

These newly rated bonds carry coupon rates of 7 per cent, 8 per cent, and 9 per cent, and mature in 2006, 2008, and 2013, respectively.

Standard & Poor’s sovereign credit ratings on Pakistan are: foreign currency ‘B/B’ and local currency ‘BB-/B’. The outlook on the long-term sovereign ratings is stable.

“The ratings on Pakistan are supported by its comfortable external liquidity position, and progress made in structural reform and fiscal consolidation,” said Standard & Poor’s.

It said the foreign exchange reserves had risen to more than $9 billion by end of fiscal year 2003 (ending June 30, 2003), and are expected to continue rising in the coming months. At the same time, relations with official creditors, including the US, should remain on an even keel, thanks to the government’s support for the US-led effort against the Al-Qaeda and its supporters.

The government’s structural reform agenda has also remained broadly on track, although the regional security concerns have slowed down its privatization programme.

In addition, the government is continuing to pursue fiscal consolidation and is aiming to further narrow its federal government deficit (excluding foreign grants) to 4 per cent of GDP for the current fiscal year (ending June 30, 2004), down from the estimated 4.6 per cent of GDP deficit for fiscal year 2003.

Nevertheless, Pakistan’s twin debt burdens of net general government debt and net public external debt, at above 90 per cent of the GDP and 170 per cent of current account receipts, are among the highest of all sovereigns rated by Standard & Poor’s.