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Fitch Ratings upgrades Pakistan’s credit rating to ‘CCC+’


Fitch Ratings

WEB DESK: Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘CCC’ to ‘CCC+’.

This upgrade reflects greater confidence in Pakistan’s ability to secure external funding, bolstered by a recent staff-level agreement (SLA) with the International Monetary Fund (IMF) for a new 37-month, $7 billion Extended Fund Facility (EFF).

Performance under the previous IMF programme helped Pakistan reduce fiscal deficits and rebuild foreign exchange reserves, with further improvements expected.

However, Pakistan’s large funding needs pose risks. Failure to implement necessary reforms could jeopardise programme performance and funding stability.

On 12 July, Pakistan and the IMF reached the SLA. For IMF Board approval, expected by the end of August, Pakistan must secure around $4 billion to $5 billion in additional funding assurances from key bilateral partners, including Saudi Arabia, the UAE, and China.

Fitch believes this is feasible due to the government’s strong track record and significant fiscal measures in the budget for the fiscal year ending June 2025 (FY25).

The agency forecasts the current account deficit (CAD) will remain around $4 billion (1% of GDP) in FY25, compared to $700 million in FY24, due to tight financing conditions and subdued domestic demand.

Economic adjustments, lower commodity prices, and rupee depreciation have sharply reduced the CAD from over $17 billion in FY22. Foreign exchange shortages have eased with increased remittances.

Pakistan faces over $22 billion in external public debt maturities in FY25, including $13 billion in bilateral loans and nearly $4 billion from the State Bank of Pakistan (SBP). The government has identified over $24 billion in gross external financing, excluding potential bond issuance.

Official reserves have risen to over $15 billion, and are expected to reach nearly $22 billion by the end of fiscal year 2026. The SBP’s net liquid FX reserves have improved to over $9 billion.

Policy rate cut, Fitch’s credit rating upgrade indicate economic improvement: PM Shehbaz

Prime Minister Shehbaz Sharif also expressed his satisfaction with Fitch Ratings’ decision to upgrade Pakistan’s credit rating to ‘CCC+’. He commended Finance Minister Muhammad Aurangzeb and the financial team for their dedicated efforts and hard work.

The Prime Minister stated that the sacrifices made for the sake of the state have today yielded economic improvements for the country and its people. He described the upgrade to CCC+ as a global acknowledgment of Pakistan’s sound economic policies.

Sharif highlighted that the government is working tirelessly on its economic reform agenda, vowing to deliver results to the public. He emphasised that reports from Fitch and other international financial institutions are crucial in assessing Pakistan’s economic progress.

The Prime Minister reiterated his commitment to advancing on the path of economic improvement with increased diligence and enthusiasm. He expressed hope that the new IMF programme would further enhance Pakistan’s economic growth and activity.

Furthermore, he noted that the State Bank’s recent decision to reduce interest rates by one per cent is another positive sign of economic progress. According to Sharif, this rate cut is expected to further reduce inflation and boost business activities.

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