Fitch Ratings confirms the previously-established Pakistan’s rating as ‘stable’

Fitch believes the revenue target in the FY20 budget is ambitious.

Fitch Ratings, an American credit rating agency, confirmed Pakistan’s default rating at ‘B-negative.’ on January 13, 2020. The agency says the outlook for 2020 looks ‘stable’ but warns against potential risks.

Challenging External Position:

The American agency that stands among the “Big Three credit rating agencies” maintained Pakistan’s long-term default position and proclaimed weak tax returns and a slowing economy as significant problems.

High Debt-To-GDP Ratio:

The agency says debt-to-GDP ratio resulted in an economic growth rate of 2.8 percent and fiscal deficit increased by 7.9%.  Other major weaknesses include high inflation, interest payments, and slower revenue growth. Tighter macroeconomic policies are also estimated to reduce GDP growth by 0.5% in 2020.

Progress Overshadowed By Considerable Risks:

Additionally, Fitch declared improvement in the overall strengthening of external finances and positive fiscal front but warned against potential risks. The report made it clear that Islamabad still requires a financial boost from external sources and has low reserves.

New Policy Actions:

The rating agency noted that the reforms and policy changes made by the Pakistan Tehreek-e-Insaaf Government have considerably reduced foreign dependency. The financing by the International Monetary Fund combined with policy actions have seen improvement over the past year but still had “relatively low foreign-exchange reserves in the context of an elevated external debt repayment schedule and subdued export performance.”

Public Finances:

Fitch said one of the critical credit weaknesses is public finances. The general Government deficit GDP, which was 6.5% in 2018, has slid to 8.9% in 2019. The factors contributing to this are lower SBP dividends and delayed telecom license renewals. General government debt rose to 84.8% of GDP due to the currency depreciation and higher fiscal deficit.

Fitch noted that investment in business and environment security could support the growth outlook. They further elaborated that Government efforts to broaden the tax base through its tax-filer documentation drive and removal of GST exemptions will result in stronger revenue growth.

What are your views on this? Share in the comments bar below.

Featured Content⭐