By Syed Raza Hassan

KARACHI, Pakistan (Reuters) -Ratings agency Fitch on Tuesday revised its outlook on Pakistan to negative from stable, citing a deterioration in the country's external liquidity position and financing conditions as well as the risks from renewed political volatility.

Fitch affirmed Pakistan's Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at "B-", but dollar bond prices fell sharply.

The International Monetary Fund (IMF) board was likely to approve a resumption in bailout payments, it said, but added there were considerable risks to the programme's implementation and to Pakistan's access to external finances after June 2023.

Ratings agency Moody's changed Pakistan's outlook to negative from stable on June 2..

Pakistan faces economic turmoil, with fast depleting foreign reserves, a declining currency and widening fiscal and current account deficits.

The economic meltdown has been compounded by political instability and a delay in the resumption of the IMF bailout since the government of Prime Minister Shehbaz Sharif took over from ousted premier Imran Khan in April.

Sovereign dollar bonds issued by Pakistan were down as much as 10 cents in the dollar to record lows after Fitch's move.

Suffering the sharpest losses, the 2025 bond saw bids as low as 48 cents in the dollar, while longer dated issues, such as the 2051 bond, were bid at just over 44 cents in the dollar, Tradeweb data showed.

The premium demanded by investors to hold the bonds blew out to record levels, with the sovereign spread over U.S. Treasuries widening to 1,816 basis points on the JPMorgan EMBI Global Diversified index.

The Pakistan Stock Exchange's KSE100 Index fell 978 points or -2.36% to close at 40,389.07 points on Tuesday.

The Pakistani currency fell 2.7% against the U.S. dollar to 221.5 rupees per greenback.

The rupee is especially under pressure from the falling reserves and delay in foreign inflows from the IMF and other sources, Fahad Rauf, head of research at Ismail Iqbal Securities, told Reuters.

Reserves have fallen to as low as $9.8 billion, hardly enough to pay for 45 days of imports.

"If Pakistan is able to maintain fiscal and monetary discipline, the health of the economy would improve and an outlook upgrade would follow," Rauf said.

Fitch said the political volatility could undermine the fiscal and external adjustment, especially in the environment of slowing economic growth and high inflation, which stood at 21.3% in June.

Pakistan's central bank has already pushed policy interest rates to 15%. It forecasts gross domestic product growth in the 2022-23 financial year at between 3% and 4%, less than the government's budget estimate of 5%.