Fitch Ratings has assigned a B credit rating to Pakistan with a ‘stable outlook’, but ‘weak’ economic fundamentals even if compared with the similar rated peers. According to a report issued by the rating agency, its first ever rating of Pakistan, the B ratings balance the country’s underdevelopment, political instability, weak public finances and history of macroeconomic volatility against the stabilization and progress on reforms achieved under the latest International Monetary Fund (IMF) program.
On another note, big investors all over the world are looking toward emerging or frontier economies to launch industrial projects after industrial growth has slowed down in China and some European economies. The popular investment destinations in Asia are Vietnam and the Philippines and in Europe, Poland, Romania, Hungary and Czech Republic have emerged as attractive destinations for potential investors. The world rating agencies are the volunteers which highlight economic conditions of the countries. About Pakistan, Fitch’s rating shows highly speculative debt which is two levels below the investment grade. Earlier this year, Moody’s, another US rating agency, had lowered Pakistan’s credit risk warning to ‘high’ from ‘very high’, but Fitch Ratings show that the risks have not still over. Earlier, the country was facing balance of payment problem, but the IMF deal with Pakistan Muslim League-Nawaz government had averted the crisis. Despite all odds and pressure, the Pakistani rupee has emerged as the third-best performer this quarter among 12 Asian currencies tracked by Bloomberg.
Fitch warns that distraction from financial discipline with potential to increase inflation or a widen current account deficit or a political instability could cause a downgrade, but political stability, improved security, comfortable level of foreign exchange reserves and sustained fiscal consolidation could lead to an
upgrade in the rating. The agency warns of the country’s costly conflict with India that should not turn into a full-fledged war. However, the positive side of the policy is that Pakistan is trying to normalize its relations with Afghanistan and India whereas it has deep relations with China. If $46 billion investment offered by China is realized, the government will be in the best position to revive economy, which is enduring chronic power failures and terrorism that has killed more than 50,000 people since Pakistan joined the war on terrorism in 2001.
The agency hopes that the China-Pakistan Economic Corridor can strengthen the country’s economic fundamentals, but it remains to be seen how the government maintains the rate of progress and how it bears the cost of any debt financing.