Fitch Places Pakistans Debt Ratings Under Review Insights from Azee Securities

Fitch Ratings has placed Pakistan's long-term sovereign debt ratings under "Criteria Observation" (UCO) following an overhaul of its sovereign rating methodology. This move affects 25 countries, including Pakistan, and signals potential rating adjustments over the next six months under the revised framework.

Key Highlights:

• Loss Severity Now a Factor: Fitch's updated methodology incorporates loss severity in evaluating long-term sovereign debt. Creditors’ recovery prospects in case of default will now directly impact ratings.
• Potential Rating Changes: Countries with long-term issuer default ratings (IDRs) of B+ or below, like Pakistan (currently at CCC+), may see upgrades, downgrades, or equalizations based on expected recovery outcomes.
• Global Sukuk Programme Under Review: Pakistan’s international sukuk programme has been specifically flagged, with Fitch set to reassess its recovery prospects under the new criteria.

According to analyst, this is largely a technical update. “Fitch’s methodology revision recalibrates recovery expectations and loss severity, but it does not imply an immediate change to Pakistan’s credit profile. The long-term impact will depend on the final assessment within six months,” they noted.

What Investors Should Know:

The final reassessment by Fitch could result in rating upgrades, downgrades, or confirmation of the current rating. While immediate market reaction may be limited, investors holding sovereign debt or considering sukuk exposure should track updates closely.