KARACHI: Pakistan’s road to securing high credit ratings will depend on whether the elections this week will bring about a government that can push for tough reforms, according to S&P Global Ratings.

Almost all top rating agencies have downgraded the country’s ratings due to prolonged political and economic crisis. The economic situation has apparently improved, but the uncertainty over fair elections remains a significant concern among Pakistanis.

The global news agency Bloomberg quoted a survey showing that 70 per cent of Pakistanis believed the economy was worsening while half said it was hard to get by on present income. The news agency said Pakistanis were not confident that the Feb 8 elections would be fair.

However, S&P said that a government with popular support can work with key institutions and will have a better chance of securing financing from the IMF.

According to the rating agency, Pakistan has a CCC+ rating, one step below the B category and signifies the nation is vulnerable to a default.

If the new policy moves to improve investor confidence and steps to cut inflation, this could lift fiscal and external metrics to improve the ratings. The IMF bailout package ending in March would put pressure on the new government to quickly secure another round of financing.

On Dec 22, the S&P Global Ratings lowered its long-term sovereign credit rating on Pakistan to ‘CCC+’ from ‘B-’ and the short-term rating to ‘C’ from ‘B’.

It said the nation’s credit score was cut by a notch to CCC+ from B- by S&P, which expected Pakistan’s dwindling foreign reserves to remain under pressure in the coming years with higher political risks.

The global rating agencies Fitch, Moody’s and S&P lowered Pakistan’s ratings mainly on account of poor foreign exchange reserves. Most of the analysts were expecting the same outcome due to just $6bn foreign exchange reserves of the State Bank.

The improvement in the rating is significant for Pakistan since the foreign exchange reserves are still around $8.2bn while the debt servicing requirement in FY25 would be $25bn, triple the central bank’s current reserves.

Most of the analysts were sure that the country needed another bailout package from the IMF to continue with the current pace of growth and to avoid a default-like situation it faced in July last year.

“Let the general elections be held peacefully on Feb 8. This will make the future economic road more visible. Doubts and fears about fair and peaceful elections have generated enough dust to see the future growth track,” a senior analyst said.

Published in Dawn, February 7th, 2024