International Rating Agency Flags Political Instability as Threat to Pakistani Economy

Islamabad: International rating agency Standard & Poor’s (S&P) has deemed political instability and unrest as significant threats to Pakistan’s economy while maintaining the country’s long-term credit rating at CCC+. According to the latest S&P report, Pakistan’s long-term rating outlook is stable, showing improvement in the country’s economic situation over the past year. The report indicates a reduced risk of default in the near term.
The report highlights that Pakistan is expected to receive funds under a new $7 billion IMF loan program, and debt rollovers with Saudi Arabia, UAE, and China are likely, which will aid in meeting external financial needs over the next six to twelve months. However, political uncertainty could impact economic performance and policy-making.
S&P notes that Pakistan faces high inflation and severe financial conditions. More than 50% of the government’s revenue this fiscal year will be used for debt repayment. Despite an increase in foreign exchange reserves, they remain low. An improvement in reserves and financial conditions could lead to a better rating for Pakistan.
The report projects economic growth of about 3.5% for the current fiscal year. Per capita income is expected to remain below $1,700 until 2026, and government debt servicing costs may increase due to financial pressures. Pakistan has the highest interest payment rate globally, and ongoing negotiations with Independent Power Producers (IPPs) could potentially reduce the debt burden.
The report also mentions that efforts toward financial stability are likely to be hindered by high inflation. Political instability may perpetuate uncertainty, affecting the implementation of necessary reforms under the IMF program. Additionally, potential border tensions with India and Afghanistan could also impact the economy.