S&P cuts Pakistan ratings as debt crisis loomss
Reuters - 2 hours 5 minutes ago
HONG KONG, Nov 14 - Standard & Poor's cut its sovereign ratings on Pakistan further into "junk" territory on Friday, highlighting the country's difficulty in raising the money that it badly needs to avoid defaulting on its debt obligations.
It marks S&P's second downgrade of Pakistan's ratings in as many months.
Friday's downgrade comes even after the country's top economic adviser said late on Thursday it expected the International Monetary Fund and other lenders to provide billions of dollars in loans soon, and China to pitch in with $500 million. [ID:nSP61519]
To debt investors Pakistan's most pressing obligation are $500 million in bonds maturing in February 2009 <PK018656060=RRPS>. The risk of default on that and other obligations have sent the cost of insurance in Pakistani debt soaring this year.
"The downgrade reflects our view that ongoing delay by Pakistan in securing external assistance ... has further increased the prospect of near-term debt service difficulties, heralding either a rescheduling of commercial external debt or an outright payment default," said S&P credit analyst Agost Benard.
S&P cut its long-term foreign currency rating on Pakistan to CCC from CCC-plus and its long-term local currency rating to CCC-plus from B-minus, putting both further into "junk" territory. The agency placed its outlook on the country as "developing."
The action places S&P's long-term foreign currency rating two notches below ratings from Moody's Investors Service, which in late October downgraded the country by one notch to B3.
Pakistani officials had previously said it needs to raise $3.5 billion to $4.5 billion fill a financing gap, and an additional $10 billion to $15 billion to avoid a balance of payment crisis.
In a sign of Pakistan's dire situation, the country had as of Oct. 25 only $6.92 billion in foreign currency reserves, of which the central bank held $3.71 billion, not enough to cover September's imports totalling $3.807 billion.
Economists say Pakistan is shedding reserves at a rate of about $1 billion a month.
In a toughly worded statement, the credit ratings agency cast doubt about whether Pakistan would be to able raise the money.
Even if the country was given the needed loans, it could spark popular discontent and political instability would make it hard to implement the policies needed to stabilise the economy, S&P said.
"Both the ruling PPP and opposition parties appear unwilling to undertake the necessary fiscal correction to make an external adjustment credible," Benard also said in the statement.
Pakistani President Asif Ali Zardari's Pakistan People's Party has been tussling with the opposition led by political rival Nawaz Sharif's Pakistan Muslim League .
Pakistan's credit defaults swaps barely reacted to S&P's move given few investors are willing to trade the contract.
The CDS were still quoted at more than 50 percent upfront, a trader said. That means an investor seeking protection against a default in Pakistan's debt would need to pay up $5 million to the insurer before even signing the contract for every $10 million of principal that has to be insured.
Recommend this article
Average (0 votes)
Sign in to recommend this article »
Most Recommended Stories »
Related Articles: Business
Reports: RBS to cut 3,000 jobs globallyAP - 1 hour 6 minutes ago
Boeing engineers seek strike authorization voteAP - 1 hour 6 minutes ago
Natixis sees opportunity in China renewables sectorReuters - 1 hour 19 minutes ago
Thailand's Italian Thai turns to big net loss in Q3Reuters - 1 hour 23 minutes ago
India cbank loans to govt 52.6 bln rupees wk to Nov 7Reuters - 1 hour 23 minutes ago
Most Popular – Business
Ancient 4,300-year-old pyramid discovered in Egypt
Britney Spears's son hospitalized: statement
Earth would be heading to a freeze without CO2 emissions
China mulls crackdown on lip-synching
Bin Laden is isolated, focused on his own security: CIA
View Complete List »