ISLAMABAD: The Standard & Poor’s rating agency on Thursday affirmed Pakistan’s ‘B-’ long-term and ‘B’ short-term sovereign rating while maintaining the long-term outlook at ‘stable’ rating.

The New York-based rating agency also affirmed ‘B-’ long-term issue rating on Pakistan’s senior unsecured debt and sukuk trust certificates. It said Pakistan’s rating remained constrained by a narrow tax base and domestic and external security risks, which continue to be high.

It forecast Pakistan’s economic growth to slow down to 2.4 per cent of the GDP during the current fiscal year — a 12-year low. Taken together with the country’s relatively fast population growth of approximately 2pc per year, real per capita economic growth will fall to an anaemic 0.4pc.

That will contribute to a decline in the country’s 10-year weighted average per capita growth to 1.8pc, below the global average of 2.3pc for economies at a similar level of income, noted the S&P releases issued on Thursday. The agency forecast GDP per capita to fall to just above $1,200 by the end of this fiscal year, versus $1,565 in fiscal 2017-2018 owing to over 25pc exchange rate loss.

The release said that although the country’s security situation has gradually improved over the recent years, ongoing vulnerabilities weaken the government’s effectiveness and weigh on the business climate, adding the policy choices had weakened support for sustainable public finances and balanced economic growth.

“Corruption level is still very high and the sovereign (Pakistan) ranks poorly on Ease of Doing Business”, said the S&P and added the country faced a long-standing risk of conflict with neighbouring states or non-state groups.

It also said that Pakistan faced a muted economic outlook, along with a highly stressed external position, as the government attempts to address its elevated fiscal deficit and debt stock and hence credit metrics will remain under pressure over the medium-term as a result.

On the other hand, the government’s securing of an International Monetary Fund (IMF) reform and funding programme, along with considerable additional bilateral and multilateral funding, will help to address near-term funding risks. Nevertheless, continued reform progress will likely be necessary to address Pakistan’s credit vulnerabilities.

The S&P said its stable outlook reflected its expectations that funding from the IMF and other partners will be sufficient for Pakistan to meet its considerable external obligations over the next one to two years.

The agency, however, warned that it may lower ratings if the country’s fiscal, economic, or external indicators continue to deteriorate, such that the government’s external debt repayments come under pressure. Conversely, it may raise ratings if the economy materially outperforms expectations, strengthening the country’s fiscal and external positions more quickly than forecast.

Subdued domestic sentiment, a negative fiscal impulse, and difficult external conditions will weigh on economic growth over the medium term and Pakistan’s very low income level remains a rating weakness.

Inadequate infrastructure and security risks continue to be structural impediments to foreign direct investment (FDI) and sustainable economic growth, it added.

Published in Dawn, August 30th, 2019