SINGAPORE (Standard & Poor's) Aug. 24, 2009--Standard & Poor's Ratings Services said today that it had raised its long-term sovereign credit rating on the Islamic Republic of Pakistan to 'B-' from 'CCC+'. The outlook is stable. Standard & Poor's also raised the ratings on Pakistan's senior unsecured debt to 'B-' from 'CCC+'. The 'C' short-term sovereign credit rating and the 'B-' transfer and convertibility rating were affirmed. "The ratings upgrade reflects Pakistan's improved external liquidity position, coupled with its successes in implementing corrective policy measures to rectify an unsustainable fiscal trajectory which evolved amid the political transition and associated instability of the recent past" said Standard & Poor's credit analyst Agost Benard. A narrowing current account deficit helped by buoyant remittance inflows, in combination with successive disbursals of IMF and other multilateral loans, have reduced the risk of near-term external payment difficulties for Pakistan. Net foreign reserves of the State Bank of Pakistan stand at US$9.4 billion, covering about 2.5 months of current account payments. The IMF's recent expansion of its standby loan facility by US$3.2 billion on top of the original US$7.6 billion, together with donor commitments of US$5.3 billion in grants for the next three years in turn provide additional support for the sovereign's ability to maintain adequate external liquidity. The ratings upgrade also takes into account fiscal stabilization, which brought the general government fiscal deficit down to 4.4% of GDP in fiscal 2009, from 7.4% in the previous year. The early phase of the consolidation effort focused largely on the expenditure side, even as spending exigencies on account of internal security threats mounted. Thus, notwithstanding the 0.9% GDP slippage in last year's overall fiscal deficit target, Standard & Poor's believes that there are improved prospects for the planned revenue reforms to succeed, which are needed to lift Pakistan's chronically low revenue raising capacity. The fiscal correction is also reinforcing the tighter monetary stance, which combine to curb the external current account deficit, and brought inflation down from peak of 25% year-over-year to about half that level currently. Standard & Poor's therefore believes the overall policy mix is evolving in a positive direction. This assessment is, however, tempered by the prevailing domestic political uncertainties and security risks which could interfere with or delay completion of the policy program committed to under the IMF standby loan agreement. The stable outlook balances increased foreign currency resources against still-high, albeit improved, economic imbalances and political risks. The rating come under downward pressure if major policy slippages occur, such that continued IMF and donor support is endangered, and/or result in renewed balance of payments difficulties or rising public debt trajectory. Conversely, the ratings could be raised on evidence that Pakistan is able to lower its fiscal and external deficits or reduce political risks in a manner that fosters higher foreign investment inflows.