Islamabad, Jul 19 (IANS): In view of the worsening liquidity and limited external funding since the beginning of this year, Fitch Ratings downgraded Pakistan's outlook to negative from stable, local media reported.

In a statement, Fitch Ratings said that the revision of the outlook to negative reflects a significant deterioration in Pakistan's external liquidity position and financing conditions since early 2022, The News reported.

"We assume IMF board approval of Pakistan's new staff-level agreement with the IMF, but see considerable risks to its implementation and to continued access to financing after the programme's expiry in June 2023 in a tough economic and political climate," read the statement.

The international credit rating agency maintained that the renewed political volatility cannot be excluded and could undermine the authorities' fiscal and external adjustment, as happened in early 2022 and 2018, particularly in the current environment of slowing growth and high inflation.

In its report, Fitch said that former prime minister Imran Khan, who was ousted in a no-confidence vote on 10 April, has been demanding early elections and staging large-scale protests and public gatherings in the country, The News reported.

The new government, however, is supported by a disparate coalition of parties with only a slim majority in parliament. Regular elections are due in October 2023, creating the risk of policy slippage after the conclusion of the IMF programme.

Giving another reason for downgrading Pakistan's rating, Fitch said that limited external funding and large current account deficits have drained foreign exchange reserves, as the State Bank of Pakistan (SBP) has used reserves to slow currency depreciation, The News reported.

It said that liquid net FX reserves at the SBP declined to about $10 billion or just over one month of current external payments by June 2022, down from about $16 billion a year earlier.