KARACHI, Oct 9: An improvement in Pakistan’s credit ratings from its current junk status hinges on securing political stability, which hit a fresh setback this week due to renewed religious violence. Only then, say international credit rating agencies, will it be possible to drum up the investment and implement the reforms needed to develop an economy still far too dependent on agriculture.

“We’re concerned about the political situation, which is a constraining factor for the country’s credit rating,” said Chihwai Liew, a sovereign ratings specialist at Standard & Poor’s Corp.

Liew said a major concern stems from the recent upsurge in religious violence, which will likely hurt foreign investment and impair the government’s ability to push through economic reforms amid strong opposition to change in parliament.

The concerns raised by Liew come ahead of a planned visit by S&P to Pakistan in November, when it will monitor economic, political and fiscal developments for a credit ratings review.

As matters stand, S&P’s foreign currency rating for Pakistan is five notches below investment grade at B. This rating is on a par with Indonesia, which S&P upgraded this week, and three notches below India.

Moody’s Investors Service Inc. has also raised concerns over Pakistan’s political situation, saying in a recent report that an upgrade in the country’s credit ratings depends on increased stability in both the domestic and regional political situation.

Pakistan’s alliance with the US-led coalition against terrorism in September 2001 has produced mixed results.

While the economy has benefited from US-led aid and foreign exchange remittances from expatriates, which have fuelled a boom in the stock and property markets. The country’s foreign reserves now stand at a record $11.4 billion.

For this reason, S&P increased its credit rating for Pakistan’s foreign currency debt to B from B- last November, citing an improving external balance of payment situation.

Late last year, Moody’s raised its outlook on Pakistan’s country ceiling for foreign currency debt to positive, also on an improving external balance of payments situation. Moody’s credit rating for Pakistan is B3, six notches below investment grade.

Among the large investment houses, ABN Amro Bank believes the international credit rating agencies should consider a further upgrade in Pakistan’s foreign currency ratings due to recent economic gains and reforms undertaken by President Pervez Musharraf.— Dow Jones Newswires