December 3, 2003	Wednesday	Shawwal 8, 1424

ISLAMABAD, Dec 2: Standard & Poor’s Ratings Agency on Tuesday improved Pakistan’s credit rating to positive from stable but warned that any backtracking on reforms or fiscal slippage could result in renewed downward pressure on the ratings.

An announcement by the rating agency said it revised the outlook on its long-term sovereign credit ratings on Pakistan to positive from stable. The ‘B/B’ foreign currency and ‘BB-/B’ local currency sovereign ratings on Pakistan were affirmed.

The outlook revision reflects improved fiscal and macroeconomic performance, growing external liquidity, and continued structural reforms under Prime Minister Zafarullah Jamali’s government.

“Since coming to power about a year ago, the Jamali-led coalition government has generally remained steadfast in practising prudent economic management,” said Standard & Poor’s Sovereign credit analyst Chih Wai Liew.

“Investor confidence and economic stability have been boosted by the reduction in Pakistan’s general government deficit (excluding grants) to 4.4 per cent of GDP in fiscal 2003, a 27-year low,” he added.

Progress on the extensive structural reforms agenda is largely on track, although still incremental. This progress comes despite a lack of public support, a difficult external environment, and domestic political uncertainties created by the ongoing impasse between the government and opposition over the Legal Framework Order (LFO).

It said Pakistan’s economy outperformed expectations by registering real GDP growth of 5.8 per cent in fiscal 2003. This is the fastest since fiscal 1992. The higher growth rate reflects cyclical factors, particularly favourable rainfall, and growing domestic confidence. Inflation has declined to 3.1 per cent, the lowest level in more than a decade, and external liquidity improved, with foreign exchange reserves exceeding $10 billion at the end of October 2003.

Looking ahead, ratings could improve if the government can build stronger public consensus for the prolonged structural reform required to create a virtuous cycle of sustained economic growth, job creation, poverty reduction, and falling debt. Credit standing could also improve if the government manages to tighten public finances by widening the tax base, improving compliance and making public expenditure more efficient in raising living standards.

Conversely, any backtracking on reforms or fiscal slippage that would tilt the government’s debt trajectory upward again and could result in renewed downward pressure on the ratings.