Fitch Ratings lowered Pakistan's long-term foreign-currency issuer default rating to B- from B with a stable outlook, citing increased external financing risks amid low reserves and high external debt repayments.
Despite stabilization efforts by the country's central bank and government, Pakistan's liquid reserves continued to shrink and reached $7.3 billion as of Dec. 6, according to the rating agency.
Meanwhile, Pakistan's debt-service obligations over the next three years amounted to $7 billion to $9 billion per year, and Fitch expects the country's external debt servicing to stay high throughout the next 10 years.
"Rupee depreciation, lower oil prices and newly imposed import duties will drive a deceleration in imports, while exports are likely to strengthen gradually," Fitch said. "However, this may not be sufficient to re-build reserve buffers sustainably."
Fitch noted that a successful conclusion of talks over financial aid from the International Monetary Fund may help stabilize external finances. However, the debt watcher said implementation risks would be high given the country's uneven adherence to previous programs.
The rating agency also cited Pakistan's deteriorating fiscal position and said it expects debt ratio to rise further to 75.6% of GDP in 2019 from 72.5% of GDP in 2018 and about 67% in 2017.