KARACHI, Nov 30: Standard & Poor's Ratings Services on Thursday assigned its 'BB' long-term local currency debt rating to two Pakistan Investment Bonds (PIB) due in October 2021 and October 2026, totalling Rs7 billion ($117 million).

The bonds were issued on October 31, 2006. These newly rated bonds with maturities of 15 and 20 years carry coupon rates of 10 per cent and 10.5 per cent, respectively.The 'BB' rating has also been assigned to three other PIBs with maturities of three, five, and 10 years and with coupon rates of 9.1 per cent, 9.3 per cent, and 9.6 per cent, respectively, totalling Rs10.9 billion ($181.7 million), and which were issued in May 2006.

These bonds, due in May 2009, 2011, and 2016, respectively, were reopened on October 31, 2006, raising an additional Rs8.4 billion ($140 million).

Standard & Poor's sovereign credit ratings on Pakistan are foreign currency 'B+/B' and local currency 'BB/B'. The outlook on the long-term foreign currency rating is positive, and stable for the local currency.

“The ratings on Pakistan reflect sharp decline in the government's external debt indicators and structural improvements that, over the time, should help Pakistan's integration into the global economy, and secure a higher growth path,” said Standard & Poor's credit analyst Agost Benard.

“Extensive microeconomic reforms over the past several years have improved Pakistan's growth prospects, such that a real GDP growth of about 7 per cent is a sure possibility in the medium term,” he added. Pakistan's net general government debt to GDP has improved to an estimated 54.7 per cent at year-end 2006, from 94 per cent at year-end 2001.

Notwithstanding the government's less stringent fiscal stance of recent years and earthquake-related spending needs, debt reduction should continue on the back of strong nominal GDP growth, privatisation, and low real interest rates.

Furthermore, the concessional nature of the bulk of public external debt

ensures a very low interest burden and hence minimal stress on external liquidity from debt servicing.

Looking ahead, the ratings could improve if the government can expand its recent tax reforms to widen the tax-base and raise government tax revenues significantly from the current low level of 10.4 per cent of GDP.

The country's credit standing could also improve if the authorities can demonstrate that the current pro-market, pro-growth set of policies will be sustained during successive administrations. Conversely, any backtracking on reforms or fiscal slippage that would tilt the government's debt trajectory upward again could result in renewed downward pressure on the ratings.

—Reuters