Pakistan's near-term risk of political instability has risen in recent months, but the country's sovereign rating of B- with a stable outlook remains unchanged, ratings agency Standard & Poor's said. Standard & Poor's, or S&P, warned in a report on Tuesday of political instability brought on by the indictment of Prime Minister Yusuf Raza Gilani last month for refusing a Supreme Court order to reopen old corruption cases against his party boss, President Asif Ali Zardari.
"Near-term risks of major political instability have risen over the past several months as a three-way tussle between the judiciary, executive, and the military plays out," said Agost Benard, an analyst for S&P who follows Pakistan. However S&P said it had incorporated the ongoing political and security risk in its outlook for Pakistan.
"The stable rating outlook balances adequate external liquidity against vulnerability stemming from ongoing structural fiscal weaknesses and significant political and security risk," said Benard. Ratings for Pakistan could be lowered if there was a major slippage in policy which could result in a balance of payments crisis or increasing public debt.
The current account deficit which was recorded at a provisional deficit of $2.633 billion in the first seven months of the 2011/12 fiscal year, compared with a deficit of $96 million in the same period last year.
"Pressures on balance of payments that we foreshadowed earlier are now becoming apparent, but the reserves cushion remains adequate for the time being," said Benard. "External liquidity thus remains adequate but could become a pressure point in the event of an exogenous shock or if donor inflows diminish.
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