Pakistan's short-term foreign currency issuer credit rating remains at single-C.

The ratings were removed from credit watch with negative implications, where they were first placed on May 22, 1998. The outlook is now negative.

Standard & Poor's does not rate Pakistan's local currency obligations.

The downgrade reflects the increased likelihood that the Pakistan government will resort to rescheduling its commercial debt in addition to its Paris Club debt in order to meet its US$5 billion financing gap for the current fiscal year. Since Standard & Poor's last downgraded Pakistan's rating on July 14, official international reserves have continued to fall, to about US$550 million, as has the exchange value of the Pakistan rupee, evidenced by a widening gap between official and parallel exchange rates.

A debtrestructuring could take place with or without a resumed IMF programme, which, in itself, is unlikely to satisfy Pakistan's immediate external financing needs. A resumed IMF programme could encounter domestic resistance, given the up-front fiscal and structural measures it would likely require.

The triple-C-minus rating on the Islamic Republic of Pakistan's foreign currency bonds reflects Standard & Poor's view that the risk of near-term default is substantial and growing. The next interest payment on rated debt, for Pakistan's US$300 million floating rate note (FRN) due 2001, is scheduled for November 30. Interest payments on another US$300 million worth of rated FRNs and eurobonds are scheduled during December.

Barring evidence of a change in the government's evolving debt management strategy, another downgrade of the rating into the double-C category -- indicating the likelihood of imminent default -- could occur in the coming weeks, Standard & Poor's said.