Benazirs assassination may lower Pakistans sovereign ratingsDecember 29th, 2007 - 12:29 pm ICT by admin
Singapore, Dec 29 (ANI): The sovereign credit ratings on Pakistan (foreign currency B+/Negative/B; local currency BB/Negative/B) could be lowered, if the assassination of former premier Benazir Bhutto precipitates heightened levels of violence and political turmoil, Standard & Poors Ratings Services has said.
The death of Bhutto, one of the main political contenders in the January 8 elections, is a significant blow to Pakistans transition to democratic rule, and leaves a considerable political vacuum in Pakistani politics, it said.
It, therefore, casts doubts on whether the general elections scheduled for January 8, 2008, will proceed while violent reactions by supporters could potentially spark off escalating civil disorder.
The prevailing negative outlook on the ratings on Pakistan encapsulates to a large extent risks to the political process, including attempts on the life of political leaders after a number of such incidents in the past.
Hence, the assassination in itself will not result in a rating action. However, a further weakening of Pakistans institutions, in conjunction with rising levels of violence and disorder, and the postponement of the January 8 elections would lead to a rating downgrade.
A prolonged political stalemate or social disorder would make the rating vulnerable, primarily from an external liquidity and fiscal angle.
Foreign direct investment and portfolio flows would likely decline, negatively affecting Pakistans external liquidity position, given its large current account deficit of about 4.8 per cent of GDP.
In parallel, the sovereign may encounter increasing difficulty in refinancing its external and domestic debt, as lenders risk aversion toward Pakistan increases.
In addition, fiscal slippages may arise, pushing deficits beyond the governments target four per cent of GDP, and jeopardising the currently favourable debt trajectory, the Daily Times reported.
In the short term, however, a potential escalation of violence and wide scale social upheaval could impair the sovereigns administrative capacity and interfere with its day-to-day operations. (ANI)