Fitch cuts Pakistan’s sovereign credit rating to CCC+ from B-

Rating agency cites deterioration in external liquidity, funding conditions and dropping FX reserves

Global ratings agency Fitch has cut Pakistan’s sovereign credit rating on Friday to ‘CCC+’ from ‘B-‘.

Fitch has cited further deterioration in the Pakistan’s external liquidity and funding conditions and a drop in foreign exchange (FX) reserves.

It is important to mention that Fitch typically does not assign outlooks to sovereigns with a rating of ‘CCC+’ or below.

The Fitch report has stated that due to following factors, Pakistan’s rating was further cut down.

Worsening Liquidity, Policy Risks: The Fitch report has said that Pakistan’s external liquidity, funding conditions and declined foreign exchange reserves have further deteriorated.Reserves under Pressure: Pakistan’s foreign exchange reserves that were at $20 billion in August last year have now declined to $7.6 billion on October 14, the Fitch report has stated.

External Deficit: The current account deficit (CAD) of Pakistan that had reached $17 billion in the year ended in June mainly due to oil prices and higher non-oil imports on strong consumption. However, the report has also mentioned that CAD was reduced to about $300 million in September this year.

The Fitch report also said that Pakistan will need $21 billion in fiscal year 2023 due to maturities of external public debt.

According to the Fitch report, Pakistan has an ESG Relevance Score of five for political stability and rights; ESG Relevance Score of five for rule of law, institutional & regulatory quality and control of corruption; ESG Relevance Score of four for human rights and political freedoms; ESG Relevance Score of four for creditor rights. Except for the matters discussed above, the highest level of ESG credit relevance, if present, is a score of three.

ESG stands for Environmental, Social, and Governance. Investors are increasingly applying these non-financial factors as part of their analysis process to identify material risks and growth opportunities. ESG score/ratings range between 0-100.

Rating 70 and above shows good, 50 shows bad while others use letter based scoring mechanism like AAA or CCC etc.

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