S&P Global Ratings has hinted at a prospective upgrade of Pakistan’s credit rating to ‘B’ following the upcoming elections on February 8. The potential elevation is attributed to the anticipated impact of the new political government, with the actual change dependent on the economic roadmap the new rulers adopt. “Together with new policy moves to improve investor confidence and bring down inflation, this could lift fiscal and external metrics sufficiently for the sovereign ratings to move to the ‘B’ rating category,” S&P said.
Factors Influencing Pakistan’s Credit Rating
To pave the way for an improved credit rating, S&P will scrutinize the new government’s actions regarding the next International Monetary Fund (IMF) loan program, especially after the current $3 billion program concludes in March 2024. The new program is crucial to ensure the timely repayment of maturing foreign debt. According to Bloomberg, S&P envisions a path for Pakistan’s upgrade to ‘B’ post-elections. Currently rated ‘CCC+,’ the ‘B’ rating implies the capacity to repay the foreign debt on time but acknowledges a level of uncertainty; the prospects hinge on whether the incoming government can advocate for and implement necessary reforms.
Citing S&P, Bloomberg reports, “Pakistan’s road to securing higher credit ratings will depend on whether the elections this week will bring about a government that can push for tough reforms.” S&P analysts stress the importance of a government enjoying popular support and its ability to collaborate with key institutions. Effective policy measures to boost investor confidence, curb inflation, and improve fiscal and external metrics are pivotal for a shift to the ‘B’ rating category.
Upcoming Economic Roadmap
The IMF’s short-term nine-month program, concluding in March 2024, aligns with the time the new government assumes power and unveils its economic roadmap; the critical juncture will determine the trajectory of Pakistan’s fiscal and economic policies. Acknowledging challenges, the business community emphasizes the next government’s focus on securing a new IMF loan program and addressing foreign debt obligations; the stability of the currency, boosting exports, and increasing remittances are highlighted as key factors for long-lasting economic growth. Additionally, controlling inflation and reducing energy prices are identified as crucial measures to attract foreign investment.
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