Fitch sees ‘real possibility’ of default
The Fitch Ratings agency on Tuesday downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to ‘CCC-’, from ‘CCC+’ due to worsening liquidity, political volatility and decline of foreign-exchange reserves to critically low levels. A CCC minus rating denotes a very high level of default risk. One of the three major global rating agencies, Fitch said it did not typically assign outlooks to sovereigns with a rating of ‘CCC+’ or below. On Oct 21, 2022, Moody’s — another global rating agency — downgraded Pakistan’s IDR to CCC- from B-, reflecting a steady deterioration since the start of the current fiscal year. In a note defining its action, Fitch explained that the downgrading reflects further sharp deterioration in external liquidity and funding conditions and the decline of foreign exchange reserves to critically low levels. It said that shortfalls in revenue collection, energy subsidies and policies inconsistent with a market-determined exchange rate have held up the 9th review of Pakistan’s IMF programme, which was originally due in Nov 2022. “While we assume a successful conclusion of the 9th review of Pakistan’s IMF programme, the downgrade also reflects large risks to continued programme performance and funding, including in the run-up to this year’s elections,” the agency wrote.