May 18, 2017 / 4:32 AM / 2 years ago

Fitch: Pakistan External Finance Pressures Still Manageable

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, May 18 (Fitch) The recent fall in Pakistan's foreign-exchange reserves and widening of its current account are manageable, and the country is unlikely to face significant external-financing difficulties in the short term, barring an unexpected shock, says Fitch Ratings. The three-year IMF-supported programme that ended in September 2016 helped drive a general improvement in Pakistan's macroeconomic stability. In particular, it reversed a sharp decline in foreign reserves. However, there have been signs of a re-emergence of external pressures since the end of the IMF programme. Foreign reserves, for example, fell for five consecutive months from October. The current-account deficit reached USD2.6 billion in January-March 2017, the highest since September-December 2008. The widening resulted from slower growth in remittances, the rise in global oil prices and imports associated with infrastructure projects in the China-Pakistan Economic Corridor (CPEC). The corridor is part of China's One Belt, One Road programme and so far includes projects worth more than USD60 billion, with most of the finance coming from China. Nevertheless, the situation is a long way from the one that Pakistan faced prior to the IMF agreement in 2013. The decline in foreign reserves has been small in the context of the large build-up recorded during the IMF programme (see chart). The State Bank of Pakistan has been able to keep the Pakistani rupee stable against the US dollar over the last 18 months, even during periods of dollar appreciation. In contrast, there was a sharp depreciation of the rupee in the years leading up to the IMF agreement, even as reserves fell at a rapid rate. <iframe allowfullscreen src="// ly_high?src=embe d" title="Pakistan Foreign Reserves" width="550" height="649" scrolling="no" frameborder="0"> Importantly, there does not appear to have been a significant deterioration in Pakistan's international financing conditions. Yields and credit default swaps on sovereign debt have generally been on a downward trend since mid-2016, and are low compared with 2013. The widening of the current-account deficit has exceeded our assumptions when we affirmed Pakistan's rating at 'B'/Stable in February. We had expected higher capital imports and a gradual recovery in energy prices to widen the current-account deficit to 1.6% of GDP in FY17 and 2.0% in FY18, from 1.2% in FY16. There is now an upside risk to those forecasts, particularly in FY17. However, the current-account deficit is unlikely to widen by enough to create significant strains, as long as oil prices do not spike higher than we currently expect. Moreover, imports related to the CPEC will be largely offset by equivalent financing from China. Nevertheless, Pakistan's large external-financing needs undoubtedly expose the country to changes in investor sentiment, which could be triggered by a reversal of structural reforms or an escalation of political and security threats. Looking further ahead, bigger risks may also emerge when the funding for CPEC projects needs to be repaid and profits start to be repatriated. The economy's ability to meet external repayments will partly depend on whether improved infrastructure can unlock the growth potential of its export industries. Poor logistical networks and unreliable energy supply weigh heavily on the international competitiveness of Pakistan's exporters. Improvements might spark a significant increase business activity, but this positive scenario might not materialise if, for example, there are disruptions to economic stability or the security situation deteriorates. Contact: Mervyn Tang Director Sovereigns +852 2263 9944 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Dan Martin Senior Analyst Fitch Wire +65 6796 7232 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below