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S&P Global Ratings downgrades Pakistan’s credit score

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  • S&P decreases Pakistan’s credit score from B- to CCC+.
  • Agency maintains Pakistan’s outlook stable.
  • Fitch and Moody’s have already ranked Pakistan’s bonds below investment grade.

KARACHI: S&P Global Ratings has downgraded Pakistan’s credit score due to the series of shocks — from flooding to surging inflation — that has deteriorated the country’s external, fiscal and economic metrics, reported The News.

The nation’s credit score was downgraded from B- to CCC+ by S&P, which expects Pakistan’s dwindling foreign reserves to remain under pressure in the coming year, just as political risks linger, according to a statement.

“Pakistan’s already low foreign exchange reserves will remain under pressure throughout 2023, barring a material decline in oil prices or a step-up in foreign assistance,” S&P analysts Andrew Wood and YeeFarn Phua wrote.

The country also faces elevated political risks which may affect its policy trajectory over the next year.

Fitch Ratings and Moody’s Investors Service already rank the nation’s $7.8 billion in foreign bonds at seven notches below investment grade, the equivalent of S&P’s CCC+ rating, on par with El Salvador and Ukraine. S&P also raised the outlook for Pakistan to stable from negative on Thursday.

The country is facing an economic crisis with only enough reserves to cover one month of imports, a dollar shortage and a delay in its loan programme with the International Monetary Fund. Investors are pessimistic about Pakistan’s ability to keep up with its foreign debt obligations, with long-term dollar bonds continuing to trade at distressed levels despite the payment of a $1 billion bond this month.

S&P said this year’s severe floods, surging food and energy inflation, as well as rising global interest rates, will further depress Pakistan’s economic and fiscal outcomes, with refinancing challenges over the medium term.

Pakistan’s unprecedented floods in the summer killed more than 1,700 people, inundated a third of the nation and cut the nation’s growth by half. The floods have left about $32 billion in damages and losses to the nation’s economy.

Meantime, the current administration is set to end by August of next year or earlier, meaning it has limited time to implement economic reforms.

“We expect political uncertainty to remain elevated over the coming quarters, with continued pressure from the opposition to hold early elections,” the S&P analysts wrote.

The agency maintained its outlook at “stable”.

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Pakistan’s gold price increases by an additional Rs. 800 per tola.

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The price of yellow metal in the local market hit Rs247,300 on the first working day of the week, following a rise of Rs800 in a single day.

The cost of ten grams of 24-karat gold increased by Rs686 on Monday, making the current price Rs212,020.

In addition, the cost of 10 grams of 22-karat gold increased significantly, trading at Rs194,351.

These fluctuations are strongly correlated with shifts in the US dollar’s value, demonstrating the tight connection between gold prices and exchange rates. This emphasizes how local gold markets are impacted by variables related to the global economy.

The price of the precious metal dropped $16 on the international market on Monday, hitting $2,348 per ounce.

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A delegation from Pakistan travels to the US to bargain with the IMF for a new loan.

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The Pakistani delegation consists of the Governor of the State Bank of Pakistan, the Secretary of Finance, the Additional Secretary, and other individuals.

The Finance Minister was greeted at the airport by Pakistan’s Ambassador to the United States, Masood Khan, and Embassy staff.

The Finance Minister will meet with representatives of the World Bank and IMF while he is in the US.

The IMF and Pakistan are expected to negotiate next week, according to sources.

Sources claim that Islamabad will apply for a new credit package from the IMF.

The Finance Minister’s itinerary also includes meetings with members of think tanks and the world press.

Last month, Pakistan and the IMF came to a staff-level agreement over the third and final review of the $3 billion stand-by arrangement. Should the board of the global lender approve this deal, Pakistan will get approximately $1.1 billion.

Although a specific date has not been determined, the IMF board is anticipated to evaluate the case in late April, according to a spokeswoman.

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Pakistan’s petrol prices are anticipated to rise.

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The Oil and Gas Regulatory Authority (OGRA) will not disclose the anticipated increase in fuel prices until its work is finished, according to sources.

Prime Minister Shehbaz Sharif will receive the summary of the petrol price, and sources further stated that the new pricing will be revealed following his approval today.

Noteworthy to highlight is that Pakistan was previously ordered by the International Monetary Fund (IMF) to impose an 18% General Sales Tax (GST) on gasoline.

Details indicate that Pakistan was requested by the Monetary Fund to stop reducing sales tax on all goods, including gasoline.

To boost tax revenue, Pakistan’s recently elected government should impose a sales tax on petroleum items in addition to a Rs 60 charge.

High-speed diesel (HSD) was reduced by Rs3.32 per litre on March 31 but petrol prices increased by Rs9.66 per litre by the government.

In contrast to the reduction in the price of high-speed diesel (HSD) to Rs282.24 from Rs278.92, the price of gasoline jumped to Rs289.41 per litre.

The adjustments were brought about by a commensurate increase in the price of gasoline and a decline in the price of HSD on the global market, according to a statement released by the Finance Ministry.

According to the statement, the adjustment was made in accordance with government policy, which transfers pricing differences from the foreign market to the home market.

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