Fitch Ratings has recently upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘CCC’ to ‘CCC+.’ This upgrade is attributed to increased certainty regarding the continuous availability of external funding, particularly in light of Pakistan’s new agreement with the IMF on a 37-month USD 7 billion Extended Fund Facility (EFF).
Despite this positive adjustment, Fitch cautions that Pakistan remains at risk due to its substantial funding needs and the challenges associated with implementing necessary reforms. These reforms are critical for maintaining program performance and securing continued funding.
Fitch remains optimistic about Pakistan’s ability to meet these challenges, citing a strong historical record of support and substantial policy measures introduced in the recent fiscal budget for FY25.
Reflecting on Pakistan’s previous financial strategies, Fitch noted that the country successfully concluded a nine-month Stand-by Arrangement with the IMF in April. Over the past year, the government has increased taxes, reduced spending, and raised the prices of electricity, gas, and petrol.
Looking forward, Fitch anticipates that the current PML-N-led coalition government will stay in power for the next 18 months without immediate plans for fresh elections. The government is expected to continue implementing IMF-mandated reforms, which should support economic growth.
Fitch predicts that former Prime Minister Imran Khan is unlikely to be released from jail soon despite obtaining relief in several cases. Fitch also projects that Pakistan’s account deficit will remain 1% in FY2024/25.
