(Corrects to remove erroneous reference to e-mail in second paragraph of story published on Sept. 1)
Pakistan’s most destructive floods are a “temporary setback” and won’t have a bearing on the nation’s credit rating, Standard & Poor’s said even as the government predicted the disaster will hurt growth.
The impact from the floods will slow gross domestic product growth and stoke inflation, Prime Minister Syed Yousuf Raza Gilani said today. The government will miss its economic growth target of 4.5 percent for the year that began July 1 and the economy may expand 2.5 percent, he said.
“We have also expected that the floods will cause slower GDP growth this year, higher inflation and higher fiscal deficits,” Agost Benard, Associate Director of Sovereign & International Public Finance Ratings at S&P, said in Singapore today. “The likely deterioration in all these variables has been taken into account in our view, which is that the stable outlook on Pakistan’s sovereign rating remains for now.”
The comments came after Moody’s Investors Service said last month it is unlikely to lower Pakistan’s debt rating, adding the floods have reduced the possibility of a rating upgrade. Gilani said today inflation will be in the range of 15 percent to 20 percent, missing the 9.5 percent target.
“It is not enough to push the country over the edge,” Benard said in an interview late yesterday. “Once the effects of the flooding are dealt with, the country will have to just pick things up where they left off, in terms of fiscal consolidation, debt reduction and economic reform to try and boost growth rates.”
S&P rates Pakistan’s foreign and local-currency debt at B-, six levels below investment grade. Moody’s, which raised Pakistan’s credit-rating outlook to stable from negative in August last year, rates the nation’s foreign and local-currency debt at B3, six levels below investment grade.
S&P cut Pakistan’s rating to CCC in 2008 as the country battled a balance-of-payments crisis, when the nation was losing about a billion dollars in foreign-exchange reserves every month, Benard said.
“Reserves were draining from the country, but that is not the case here,” Benard said. “That’s behind us, which is why we put the rating to B-. There is no balance-of-payments crisis and it is unlikely that this natural disaster would precipitate another balance-of-payments crisis.”
The floods have displaced more than 17 million people, submerged 4,000 kilometers (2,485 miles) of roads, destroyed $1 billion of crops and killed 10 million heads of livestock.
To contact the reporter on this story: Khurrum Anis in Singapore at firstname.lastname@example.org