Singapore, Nov 6 (UNI) Standard and Poor's Ratings Services today revised its outlook on the long-term foreign and local currency sovereign credit ratings of Pakistan to negative from stable.
The agency has also affirmed its 'B+/B' foreign currency and 'BB/B' local currency sovereign credit ratings for the Islamic country.
''The outlook revision reflects heightened and prolonged political uncertainty after President Pervez Musharraf's declaration of emergency on November 3, and its potential impact on economic growth, fiscal performance, and external vulnerability,'' said Standard and Poor's credit analyst Agost Benard.
The country's political and security situation has deteriorated in recent months. Before declaring emergency, Gen Musharraf was undergoing what many perceived to be the most severe challenge to his authority since he came to power eight years ago.
This period of increased uncertainty has been marked by violent social unrest relating to the removal of the country's Chief Justice, the Red Mosque siege in Islamabad, and the assassination attempts on the President's life.
''With the declaration of emergency, the political turmoil and security concerns reached a new high, and prospect of swift political resolution became more distant,'' Mr Benard said.
The negative outlook reflects the likelihood of a downgrade if the current political turmoil results in economic policy setbacks, in weaker economic and fiscal performance, or in higher external debt and debt service burdens, he said.
''The outlook could be revised to stable if political pressures ease and the government is able to focus effectively in its efforts on fiscal consolidation and further economic reform,'' he added.
The expansionary stance of the 2007-2008 budget has led to heightened concerns over the country's fiscal position, which remains vulnerable given the government's high debt and debt-service burdens.
Recent events exacerbate the risk of expenditure overruns and revenue shortfalls, thereby increasing the risk of exceeding the four per cent deficit target.
In addition to potential fiscal impact, the political turmoil exposes the sovereign to external pressures if foreign direct investments and other equity inflows, which have funded about two thirds of the country's large current account deficit (estimated at just under 20 per cent of current account receipts in fiscal 2006-2007), diminish significantly.