Pakistan’s credit rating improving, says Fitch

Global credit rating agency Fitch said that Pakistan has continued to make headway in restoring economic stability and rebuilding external buffers.

Fitch Ratings emphasized that Pakistan’s progress on structural reforms is crucial for upcoming IMF program reviews and securing continued financial support from global lenders. The agency noted improved economic stability, supported by lower inflation and effective policy measures.

The State Bank of Pakistan (SBP) recently cut the policy rate to 12% after inflation dropped to just over 2% in January 2025, down from nearly 24% in the previous fiscal year. This decline is attributed to a stable exchange rate, tight monetary policies, and reduced domestic demand. Economic activity is recovering, with GDP expected to grow by 3% in FY25.

Pakistan’s current account surplus reached $1.2 billion in the last six months of 2024, driven by strong remittances, agricultural exports, and strict economic policies. Foreign reserves exceeded $18.3 billion by the end of 2024, covering nearly three months of external payments. However, Pakistan faces over $22 billion in external debt repayments in FY25, including nearly $13 billion in bilateral deposits. Saudi Arabia and the UAE have already rolled over $5 billion.

Fitch expects future foreign funding to be more commercial and linked to economic reforms. Discussions are ongoing for Saudi investment in a copper mine, and a deferred oil payment agreement has been finalized.

Fiscal reforms are advancing, though challenges persist. While the primary fiscal surplus met IMF targets, federal tax collection fell short. Provinces introduced higher agricultural taxes, a key IMF requirement, but implementation delays caused Pakistan to miss the January 2025 deadline.

Fitch indicated that Pakistan’s credit rating could improve with sustained growth in reserves and reduced external financing risks. However, delays in IMF reviews or liquidity challenges could negatively impact the rating.