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The credit ratings on Pak can be lowered: Standard and Poor

By Staff
Google Oneindia News

Singapore, Dec 28 (UNI) Standard&Poor's Ratings Services today said the sovereign credit ratings on Pakistan can be lowered, if the assassination of Benazir Bhutto precipitates heightened levels of violence and political turmoil.

It has currently rated Pakistan's foreign currency B+/Negative/B; and local currency BB/Negative/B.

The death of former prime minister Bhutto, one of the main political contenders in the upcoming general elections, is a significant blow to Pakistan's transition to democratic rule, and leaves a considerable political vacuum in Pakistani politics, said Standard&Poor's in its latest assessment of Pakistan.

It therefore, casts doubts on whether general elections scheduled for January 8, 2008, will proceed, while violent reactions by supporters can potentially spark escalating civil disorder, according to the international rating agency.

The prevailing negative outlook on the ratings on Pakistan encapsulates to a large extent risks to the political process, including attempts on the life of political leaders after a number of such incidents in the past, Standard&Poor's pointed out.

Hence, Bhutto assassination in itself will not result in a rating action. However, a further weakening of Pakistan's institutions, in conjunction with rising levels of violence and disorder, and the postponement of the January 8 elections will lead to a rating downgrade, said the agency.

A prolonged political stalemate or social disorder will make the rating vulnerable, primarily from an external liquidity and fiscal angle, said Standard&Poor's.

Foreign direct investment and portfolio flows are likely to decline, negatively affecting Pakistan's external liquidity position, given its large current account deficit of about 4.8 per cent of Gross Domestic Product (GDP), it added.

In parallel, the sovereign may encounter increasing difficulty in refinancing its external and domestic debt, as lenders' risk aversion towards Pakistan increases, observed the agency.

In addition, fiscal slippages may arise, pushing deficits beyond the government's target 4 per cent of GDP, and jeopardizing the currently favourable debt trajectory, according to the agency.

In the short term, however, a potential escalation of violence and wide scale social upheaval can impair the sovereign's administrative capacity and interfere with its day-to-day operations, it said.


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