Fitch’s concerns

STUCK in a protracted cycle of stagflation, Pakistan’s economy faces numerous challenges. Some of these pertain to long-standing structural issues such as low tax revenue, a large energy-sector debt, the massive losses of SOEs and low exports. Others are of a more immediate nature and relate to a weakened balance-of-payments position amid few foreign, private and commercial inflows; they persist despite the new IMF programme. The continuing political discord is not helping either. No wonder Fitch, one of the three biggest global rating agencies, has emphasised high external funding risks, despite some stabilisation and a strong performance on the Stand-by Arrangement with the IMF, as well as uncertainty regarding the near-term political outlook. While it upgraded Pakistan’s long-term foreign currency issuer default rating from ‘CCC-’ to ‘CCC’ in July, following the approval of the $3bn IMF loan, the current rating still indicates significant country credit risk. Fitch believes that Pakistan is facing external funding risks given its high medium-term financing needs. “Pakistan’s overall external funding targets of $18bn (gross) for the current fiscal year were ambitious against nearly $9bn in government debt maturities.