Oct. 31 (Bloomberg) -- Pakistan will be able to maintain an adequate level of foreign-exchange reserves because of funds provided by donor countries, Standard & Poor’s said as it affirmed the South Asian nation’s credit rating.
“We expect donor commitments will ensure at least an adequate level of external liquidity in the next two years,” S&P said in an e-mailed statement today. The rating company maintained its B- foreign- and local-currency rating for Pakistan. The rating is six levels below investment grade.
The stable rating outlook “balances adequate external liquidity against vulnerability stemming from ongoing structural fiscal weaknesses and significant political and security risk,” S&P said. The International Monetary Fund in May 2010 suspended disbursements to Pakistan after the country failed to meet conditions such as reducing the budget deficit that were attached to a $11.3 billion loan.
Pakistan didn’t seek a new program after the previous one expired on Sept. 30.
Pakistan’s foreign-exchange reserves stood at $17.2 billion as of Oct. 27, compared with a record $18.3 billion at the end of July, according to the central bank.
While the “current level of external liquidity is likely to diminish somewhat” after the expiry of the IMF loan program, the pledge by donor nations will help boost Pakistan’s “external liquidity,” S&P said.
Pakistan’s high public and external indebtedness and sectarian strife are preventing S&P from upgrading Pakistan’s credit rating, according to the statement.
“The weak revenue performance also poses a direct constraint on monetary policy effectiveness, as the government is compelled to resort to borrowing from the central bank for deficit financing,” the statement showed.
Policy makers aim to boost Pakistan’s economic growth to 4.2 percent in the fiscal year through June from 2.4 percent in the previous year.
Terror attacks in the South Asian nation have killed at least 35,000 people since 2006, according to government estimates.
--Editors: Cherian Thomas, David Merritt
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