Pakistan’s economic outlook was dealt another blow today when Fitch Ratings, one of the three biggest credit rating agencies, revised its outlook from ‘stable’ to ‘negative’. The news comes amid a worsening external liquidity position and uncertain future financing.
The country breathed a sigh of relief last week when a staff level agreement was successfully concluded with the IMF. While the IMF insisted that it is willing to continue the talks irrespective of who is in the government, the political uncertainty as a result of the recent by-elections in Punjab hasn’t helped.
Dwindling forex reserves
As things stand, the country only has one month’s worth of forex reserves at $10 billion, an alarming situation that has many in the country convinced that they are on the cusp of default. Same time last year, the forex reserves stood at $16 billion.
With a worsening currency that is losing value against the dollar every single day, and an import bill that continues to rise, the current government is struggling to control petroleum prices. Petrol prices are up over 50% since the current government took over. The public is already feeling the effects of this rise and the official numbers on inflation do not give an accurate picture of the ground realities.
The Fitch downgrade follows a similar downgrade by Moody’s early last month. Moody’s does seem upbeat on the country’s ability to secure financing from the IMF as well as on the country’s ability to tap its enormous growth potential. However, the fragile short term financial situation as well as weak governance continue to be the biggest issues the country faces.