July 11, 2007	Wednesday	Jamadi-us-Sani 25, 1428

KARACHI, July 10: Standard & Poor's Rating Services on Tuesday affirmed its 'B+/B' foreign currency and 'BB/B' local currency sovereign credit ratings on Pakistan.

At the same time, Standard & Poor's revised its outlook on both the foreign and local currency ratings to Stable from Positive.

The outlook revision reflects growing concerns over the country's deteriorating security environment and the risk of potential fiscal slippages.

"Pakistan's political and security situation has deteriorated markedly in recent months," said Standard & Poor's credit analyst Agost Benard.

"This period of increased uncertainty has been marked by violent social unrest relating to the removal of the country's chief justice, Islamabad's Red Mosque siege, and the latest assassination attempt on President Musharraf's life."

The expansionary stance of the recent proposed budget for fiscal 2007-08 has also heightened concerns over the country's fiscal position, which remains vulnerable given the government's high debt and debt-service burden.

The pro-growth and election-oriented budget aims for a deficit target of 4 per cent of GDP compared to 4.2 per cent in the previous fiscal year. The key risk to this forecast is that the deficit could rise if the budget's planned revenue increase fails to materialise.

This is because any shortfall in revenue will be difficult to offset via spending cuts, especially in an election year.

"The stable outlook reflects our expectation that the government will continue to implement current economic policies, which is balanced against the risk of potential fiscal slippages," said Mr. Benard.

"This could occur in the light of an ambitious revenue target and the political uncertainty surrounding the future of the Musharraf’s administration and the potential implications that such uncertainty has on investors’ confidence."

"The move back to a stable outlook reflects the diminished probability of a ratings upgrade in the near future," Mr. Benard added.