Pakistan is finally starting to get a little recognition from the global economic community for the baby steps it is taking towards reforming its economy. Fitch Ratings followed Moody’s Rating Services in assigning a B, or “junk” level, credit rating to the sovereign debt of Pakistan on Tuesday. The rating service did say that Pakistani bonds had a stable outlook, but warned the nation’s economic fundamentals are “weak” relative to peers with similar ratings.
According to a report written by a Fitch analyst team led by Andrew Colquhoun, “Pakistan’s 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 country’s latest International Monetary Fund (IMF) program.”.
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Of note, this is the first time Fitch has rated Pakistani debt.
Based on Fitch’s rating system, a “B” rating indicates “highly speculative” debt that is two levels below investment grade. Also of interest, in the first half of the year, Moody’s (who also currently rates Pakistan as “junk”) reduced Pakistan’s credit risk warning to “high” from “very high.”
China looking to help boost Pakistan’s economy
Given the high level of tensions on the extremely militarized India – Pakistan border recently, it’s not a big surprise that Pakistan’s relationship with China has deepened over the last few years. In fact, China has offered to invest as much as $46 billion in various infrastructure projects over the next several years, but nothing specific has been finalized to date.
If the China-Pakistan Economic Corridor actually comes into being, it would certainly be a major boon to Pakistan’s economy, which is plagued by regular power failures and an insurgency that has led to over 50,000 deaths in a little more than a decade..
“The China-Pakistan Economic Corridor initiative announced in April could significantly strengthen Pakistan’s economic fundamentals,” Fitch noted in its report. “However, the rate of progress with the scheme and the cost of any debt financing incurred by the Pakistani sovereign remain to be seen.”