KARACHI: Standard & Poor’s (S&P) Rating Services has affirmed ‘B-’ long-term and ‘B’ short-term sovereign credit ratings on Pakistan, adding that the outlook on the long-term rating is “stable”, said a press release by the agency on Wednesday.

The ratings incorporate Pakistan’s significant security risks, the underlying weak institutional and policy effectiveness, low external liquidity, low per capita income, a weak fiscal profile, high public debt, and a lack of monetary flexibility.

“The domestic and external security situation remains challenging,” said the rating agency.

Apart from security concerns, notable bureaucracy and perceived corruption constrains governance and institutional effectiveness.

“Pakistan’s political landscape is more stable than that a few years ago.”

The agency said the increase in the country’s foreign exchange reserves in recent months has tempered external liquidity risk.

“We expect Pakistan’s usable foreign exchange reserves to cover about two months current account payments at the end of FY15, up from 1.5 months at the end of FY14, assuming timely disbursements under the IMF’s lending programme and a strengthening inflow of foreign direct investments.”

“We believe the country’s low income level will remain a rating constraint. With per capita GDP at $1,500 in FY15, the government has a low revenue base on which to draw.”

Power shortages remain serious, despite the government’s energy sector strategy to increase electricity sup­­ply. The business environment and perceptions of government administrative inefficiency hampers in­vest­ment and job growth in the formal economy, said the agency.

The agency expects the government’s fiscal consolidation efforts to lower its deficit (inclusive of grant) to 3.4 per cent of GDP in FY17 from 8pc in FY13, after having cut the deficit to 5pc in FY14.

“With inflation likely hovering above 6pc over the next three years, the State Bank of Pakistan has only limited room to support the economy with monetary easing when necessary.”

Published in Dawn, November 20th , 2014