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Standard & Poor’s Ratings Services has assigned its ‘BB-‘ long-term local currency senior unsecured debt rating to three Pakistan investment bonds totalling PRs31.2bn (US$540mn) that were issued recently by the Islamic Republic of Pakistan. These newly rated bonds carry coupon rates of 7%, 8%, and 9%, and mature in 2006, 2008, and 2013, respectively.
Standard & Poor’s sovereign credit ratings on Pakistan are: foreign currency ‘B/B’ and local currency ‘BB-/B’. The outlook on the long-term sovereign ratings is stable.

“The ratings on Pakistan are supported by its comfortable external liquidity position, and progress made in structural reform and fiscal consolidation,” says Standard & Poor’s credit analyst, Chih Wai Liew. Foreign exchange reserves have risen to more than US$9bn by end of fiscal year 2003 (ending June 30, 2003 ), and are expected to continue rising in the coming months. At the same time, relations with official creditors, including the US , should remain on an even keel, thanks to the government’s support for the US-led effort against the Al-Qaeda and its supporters.

The government’s structural reform agenda has also remained broadly on track, although the regional security concerns have slowed down its privatisation programme. In addition, the government is continuing to pursue fiscal consolidation and is aiming to further narrow its federal government deficit (excluding foreign grants) to 4% of GDP for the current fiscal year (ending June 30, 2004), down from the estimated 4.6% of GDP deficit for fiscal year 2003.

Nevertheless, Pakistan’s twin debt burdens of net general government debt and net public external debt, at above 90% of GDP and 170% of current account receipts, are among the highest of all sovereigns rated by Standard & Poor’s. In addition, the government’s reform agenda could be affected by the current stalemate in parliament over the legal framework order if it is to persist further. With its slim parliament majority, the government will find it difficult to push through unpopular policies without compromise, thereby slowing the pace of structural reform, and consequently could pose some risks to Pakistan ‘s credit standing.