S&P downgrades Pakistan further into junk territory

By Rafael Nam

HONG KONG (Reuters) - Standard & Poor's cut Pakistan's sovereign rating further into junk territory, saying the country's worsening external liquidity may imperil its ability to meet about $3 billion in upcoming debt obligations.

The widely expected action comes after Pakistan said on Saturday its foreign reserves fell $690 million to $8.1 billion in the week ended Sept. 27, an announcement that helped send the Pakistani rupee to a record low against the dollar on Monday.

The country's central bank, the State Bank of Pakistan, said its reserves fell to $4.7 billion from $5.4 billion previously, representing a little over two months of import cover.

S&P's downgrade of Pakistan was its second this year, as the country faces the prospect it will default on its debt due to dwindling foreign currency reserves.

Foreign investor confidence in the country has also been dented amid worries urgently-needed economic reforms will be delayed in a year plagued by political and security concerns.

S&P's action on Monday S&P lowered its foreign currency debt rating on the country to CCC-plus from B, just several notches above a level that would indicate default. Pakistan's local currency debt rating was lowered to B-minus from BB-minus.

The ratings agency noted Pakistan will require external assistance in meeting its debt obligations -- which includes $500 million in dollar bonds maturing in February -- but expressed concern about whether it could count on the help in time.

S&P also noted the uncertain political situation and social tension cast doubt about whether the government would have the ability to adopt the appropriate policy measures.