In the quarter ending December 31, the Central Bank of Pakistan reached milestone of increasing the external assets and decreasing the internal assets of banking system. In lending to the government of Pakistan, the Central Bank also complied with the process required under the Stand-by Agreement.

The government of Pakistan raised US$2 billion from the auction of Treasury Bills (T-Bills) in December and paid off the Central Bank’s loan.

It may be noted that instead of releasing the aid in January 2010, the IMF had send the fourth tranche of US$1.20 billion on December 28 and additional US$400 million were provided to cover the budget deficit.

The IMF aid helped the banking system to increase its foreign assets up to US$4 billion and the SBP has remained successful in achieving the prescribe targets.

Greek assets have taken a hammering after two credit ratings agencies downgraded the euro zone member this month on concerns about its fiscal health, blowing out spreads between Greek bonds GR10YT=RR and safer German alternatives EU10YT=RR to their widest since early April.

Standard & Poor’s also cut Mexico’s credit ratings this week by one notch on fiscal concerns, while worries about Britain’s fiscal and economic health are nagging investors after sterling hit two-month lows against the dollar GBP= this week.

Such fiscal fears could easily chill sentiment for world stocks as the benchmark MSCI world equity index wraps up one of the best annual performances in its 20-year history — up nearly 29 percent. In December however the index has barely made gains.

“Government spending has been the major driver of global growth in 2009 and the capital markets’ challenge to this is a concern,” said Rob Burnett, head of European equities and fund manager at Neptune Investment Management.

“In Europe, Greece is the standout country but the UK, Spain, Portugal and Italy are all experiencing a similar problem. We need to see a calming in fears in relation to government debt for markets to sustainably advance.”

In Dubai, state-owned Dubai World must get creditors of debt worth billions of dollars to reach an agreement to avoid bankruptcy, even though this week’s surprise $10 billion bailout from Abu Dhabi averted a default on bonds held by its property arm Nakheel. Creditors are due to meet on Monday.

Going into the holiday season, investors must be mindful of possible credit rating downgrades and their impact on asset prices as thin liquidity tends to aggravate market moves.

Standard & Poor’s downgraded Greece by one notch to BBB+ this week, saying a further downgrade was possible if the government fails to gain political support for a fiscal consolidation programme. The move came just days after Fitch cut the country to BB-plus, the lowest sovereign rating in the euro zone.

Moody’s, the third big rating agency, has placed Greece’s A1 rating on review for a possible cut.

“It is clear that Moody’s is the least negative on Greece of the main three rating agencies. However, this should by no means be interpreted as a signal that a downgrade is not imminent. The main question is whether the downgrade will be of one or two notches and, of course, the timing will be crucial too,” Ioannis Sokos, strategist at BNP Paribas, said in a note.

Sokos says it is only Moody’s rating that will allow Greek government debt to be eligible as collateral at the European Central Bank in 2011, when the extraordinary liquidity measures by the central bank would expire.