Fitch Revises Pakistan’s Outlook to Negative due to the significant deterioration in Pakistan’s external liquidity position and financing conditions.
Fitch listed several factors for its decision to downgrade Pakistan’s outlook to negative. It said that the renewed political volatility cannot be excluded and could undermine the authorities’ fiscal and external adjustment, as happened in early 2022 and 2018, particularly in the current environment of slowing growth and high inflation.
We estimate that the fiscal deficit widened to 7.5% of GDP (nearly PKR5 trillion) in FY22, from 6.1% in FY21. Tax reductions and subsidies on fuel and electricity account for most of the fiscal deterioration; these were introduced by the previous government in February and lasted until June.
KEY Factors lead Pakistan to Negative from Stable outlook:-
⦁ Risks to Adjustment, Financing.
⦁ Political Risks.
⦁ Reserves under Pressure.
⦁ External Deficits.
⦁ Large Funding Needs.
⦁ Fiscal Worsening then Consolidation.
⦁ Debt Expected to Decline.
⦁ Other Debt Metrics Mixed.
⦁ High Inflation, Monetary Tightening.
⦁ Overheated Economy; Falling Growth.
⦁ Governance.
