ISLAMABAD: A US-based company S&P Global on Thursday lowered Pakistan’s credit rating following a series of shocks, including severe floods, surging food and energy prices, and rising global interest rates, while predicting that the country’s economy would remain under pressure in the coming year amid low foreign exchange reserves.

Pakistan is witnessing a major economic turmoil as it faces a balance of payments crisis, with foreign reserves available with the central bank dropping as low as $6.7 billion which barely cover a month’s imports.

The country is desperately trying to revive a $7 billion loan program with the International Monetary Fund (IMF) which would allow it to get a new tranche of about $1 billion.

“Pakistan’s already low foreign exchange reserves will remain under pressure throughout 2023, barring a material decline in oil prices or a step-up in foreign assistance,” S&P Global said in its statement.

It noted the country also faced elevated political risks, which could impact its policy trajectory over the next 12 months.

“As a consequence, we lowered the sovereign credit ratings on Pakistan to ‘CCC+/C’ from ‘B-/B,’” it added. “The outlook is stable.”

The US-based company said it lowered Pakistan’s ratings to reflect a continued weakening of its external, fiscal, and economic metrics.

“Given high gross external financing needs, and limited foreign exchange reserves, Pakistan’s balance of payments outlook remains vulnerable to energy price developments and the availability and timing of foreign support,” it added.

“We expect the ratio of debt to GDP and budgetary deficits to remain elevated, with more than 40% of government receipts used to finance interest payments, thereby reducing the government’s capacity to finance investment and social support.”

The statement acknowledged the severe flooding during the summer of 2022 had imposed additional hardships on households and businesses while further constraining growth.

Back in July, the agency downgraded Pakistan’s outlook on long-term ratings from stable to negative, saying it reflected growing risks to the country’s external liquidity position over the next 12 months.

In October, Fitch Ratings also downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from B-, while Moody’s also lowered five Pakistani banks’ ratings to Caa1 from B3.