The prevailing negative outlook on the ratings on Pakistan have taken into account the risks involved in the countrys political process, including attempts on the life of political leaders. The assassination in itself will not result in a rating action. However, a further weakening of Pakistans institutions, in conjunction with rising levels of violence and disorder, and the postponement of the January 8 elections would lead to a rating downgrade, S&P said in a media release.
A prolonged political stalemate or social disorder would make the rating vulnerable, primarily from an external liquidity and fiscal angle. Foreign direct investment and portfolio flows would likely decline, negatively affecting Pakistans external liquidity position, given its large current account deficit of about 4.8% of GDP.
In parallel, the sovereign may encounter increasing difficulty in refinancing its external and domestic debt, as lenders risk aversion toward Pakistan increases. In addition, fiscal slippages may arise, pushing deficits beyond the governments target 4% of GDP, the release said.
Meanwhile, Credit Suisse said in a note, We believe the markets reacted to the news more in shock and fear than any fundamental reason. We do not think it will have any bearing on Pakistans relations with neighbouring states.