ISLAMABAD: An international credit rating agency on Tuesday revised its outlook on Pakistan to negative from stable, citing deterioration in the country’s external liquidity position and financing conditions since the beginning of the year.

Faced with a widening current account deficit and depleting forex reserves, Pakistan has tried to secure external finances from friendly nations and international lending agencies in recent months.

It reached a staff-level agreement with the International Monetary Fund (IMF) for the continuation of a loan program after increasing fuel and power rates which also led to high inflation in the country.

Fitch Ratings, an American firm, said in its recent report that Pakistan was likely to get the IMF support, though it would still not be enough to address the country’s financial woes.

“The Revision of the Outlook to Negative reflects significant deterioration in Pakistan’s external liquidity position and financing conditions since early 2022,” it said. “We assume IMF board approval of Pakistan’s new staff-level agreement with the IMF, but see considerable risks to its implementation and to continued access to financing after the program’s expiry in June 2023 in a tough economic and political climate.”

“Renewed political volatility cannot be excluded and could undermine the authorities’ fiscal and external adjustment, as happened in early 2022 and 2018, particularly in the current environment of slowing growth and high inflation,” it added.

Under the circumstances, the US company affirmed Pakistan’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at B-.

Fitch issued Pakistan’s revised economic outlook after Moody’s Investors Service described the IMF pact as “credit positive” for the country, though it questioned the government’s ability to continue to raise electricity and petroleum prices ahead of the next general elections.

While acknowledging that the IMF agreement would get Pakistan $1.2 billion, Moody’s maintained the country could find it difficult to complete the loan program amid rising inflation since it was creating political problems for the new government.

However, it added Pakistan was likely to meet its external financing obligations for the foreseeable future.