ISLAMABAD: Fitch Ratings, a US-based global rating agency, has downgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC- from CCC+, it said on Tuesday, amid a worsening economic crisis in the South Asian country. 

Pakistan has been facing a plethora of economic woes over the last few months, with its foreign exchange reserves dropping to a staggering $2.9 billion, inflation rising above 27 percent in January and the local currency regularly hitting new lows against the dollar. 

The cash-strapped South Asian country desperately awaits a critical $1.2 billion bailout from the International Monetary Fund (IMF), which has been stalled since November, with the global lender urging Islamabad to take further fiscal tightening measures. 

“The downgrade reflects further sharp deterioration in external liquidity and funding conditions, and the decline of foreign-exchange (FX) reserves to critically low levels,” Fitch Ratings said in its report on Tuesday. 

“While we assume a successful conclusion of the 9th review of Pakistan’s IMF program, the downgrade also reflects large risks to continued program performance and funding, including in the run-up to this year’s elections.” 

It cited further worsening in external liquidity, policy risks, under-pressure reserves and large refinancing risks as the factors that contributed to the downgrade. 

A default or debt restructuring was an “increasingly real possibility” in the case of Pakistan, the rating agency said. 

Fitch Ratings previously downgraded Pakistan’s issuer default rating to CCC+ from B- in October 2022.

Last week, another global rating agency, Moody’s, said Pakistan’s external position was in significant stress after negotiations between the government and a visiting IMF mission remained inconclusive after 10 days of talks in Islamabad. 

Shortfalls in revenue collection, energy subsidies and policies inconsistent with a market-determined exchange rate held up the 9th review of Pakistan’s IMF program, which was originally due in November. 

However, Pakistani authorities appear close to an agreement on the 9th review and have already taken fiscal actions, including an apparent removal of a cap on the rupee exchange rate and an increase in energy prices, to facilitate the bailout deal.