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Pakistan foreign currency rating lowered to B
Staff Reporter
Islamabad—Pakistan’s foreign currency rating was cut one level to B
by Standard & Poor’s, citing government spending that’s growing
faster than revenue collection and political instability. The
outlook is negative, S&P said. “The downgrade reflects rising
pressures from the combination of expanding fiscal and external
imbalances, against a volatile and uncertain political setting,”
according to a release from New York-based S&P today. This is the
first time S&P has cut Pakistan’s rating since President Pervez
Musharraf seized power. The rating cut comes two days after nine
ministers including Finance Minister Ishaq Dar quit as six-week old
coalition government split over a dispute on the reinstatement of
judges sacked by Musharraf. Prime Minister Yousuf Raza Gilani hasn’t
appointed a new finance minister yet.
“It’s negative news, and will have a negative impact on foreign
investors,” said Farhan Rizvi, an economist at JS Global Capital
Ltd. in Karachi. “Ratings by these institutions are closely watched
by overseas investors.” Overseas investment in Pakistan, which
reached a record $6.5 billion in the year ended June 30, 2007, has
since fallen 21 percent, according to central bank data. Foreign
direct investment declined to $3.03 billion in the nine months ended
March 31 from $3.85 billion a year ago. The rating cut may further
deter overseas investors who have already retreated from the South
Asian nation, selling a net $53 million of Pakistani stocks in the
nine months ended March 31, compared with purchases of $1.69 billion
a year ago.
The benchmark Karachi Stock Exchange 100 index, which has risen 2.9
percent this year, declined 113.57 points, or 0.8 percent, at the
2:15 p.m. local-time close today. The fiscal deficit in the first
eight months of this year widened to 4.7 percent of the $146 billion
gross domestic product, exceeding the full-year target of 4.5
percent. The Pakistan Peoples party, headed by Asif Ali Zardari, and
former prime minister Nawaz Sharif’s Pakistan Muslim League, had
formed the coalition government in March with the help of two
smaller groups. The president sacked 60 judges in November before
the Supreme Court was about to rule on Musharraf’s re-election for a
second term.
The PPP-led government is constrained by the highest inflation in 25
years and economic growth that is slowing to 6 percent of gross
domestic product this fiscal year ending June 30, from 7 percent
last year. Almost half the population of Pakistan, the world’s
seventh-most-populous nation, faces difficulty gaining access to
affordable food because of the soaring cost of cereals, according to
the United Nations World Food Programme.
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