Global ratings agency Fitch on Tuesday upgraded Pakistan\u2019s foreign currency credit rating to \u2018B-\u2019 from \u2018CCC+\u2019, citing increased confidence in the country\u2019s progress on narrowing its budget deficits. The upgrade also reflects confidence that the country would implement structural reforms, supporting its International Monetary Fund (IMF) programme performance and funding availability, Fitch said. The agency said though ongoing global trade tensions could create external pressure, its low dependence on exports and market financing should mitigate risks. The economy had been teetering on the brink of default ever since inflation rose to a record high in May 2023 and reserves started shrinking, but has seen some respite thanks in part to a $7 billion bailout programme from the IMF. In March, the IMF reached a new deal with Pakistan, which could unlock $1.3bn in cash. According to the update on Fitch\u2019s website, Pakistan performed well on quantitative performance criteria, particularly on reserve accumulation and the primary surplus, although tax revenue growth fell short of its indicative target. \u201cProvincial governments have also legislated increases in agricultural income tax, a key structural benchmark,\u201d it said. \u201cThis follows Pakistan\u2019s strong performance on its previous, more temporary arrangement, which expired in April 2024,\u201d it added. The agency forecasted that the government budget deficit will narrow to 6 per cent of GDP in the fiscal year ending in June and around 5pc in the medium term, from nearly 7pc in FY24. \u201cOur FY25 forecast is conservative. We expect the primary surplus to more than double to over 2pc of GDP in FY25,\u201d the agency said. \u201cShortfalls in tax revenue, in part due to lower-than-expected inflation and imports, will be offset by lower spending and wider provincial surpluses,\u201d it said, adding that the lagged effects of high domestic interest rates in recent years still weigh on fiscal performance, but also drove the State Bank of Pakistan\u2019s (SBP) extraordinary dividend of 2pc of GDP to the government in FY25. \u201cGovernment debt\/GDP dropped to 67pc in FY24, from 75pc in FY23, and we forecast a gradual decline over the medium term, reflecting tight fiscal policy, nominal growth and a repricing of domestic debt at lower rates,\u201d it said. However, the agency said, the debt ratio would tick up in FY25 due to a rapid decline in inflation and would remain above the forecast \u2018B\u2019 median of just over 50pc. \u201cThe interest payment\/revenue ratio, which we forecast at 59pc in FY25, will narrow, but remain well above the \u2018B\u2019 median of about 13pc, given a high share of domestic debt and a narrow revenue base,\u201d it said. \u201cWe expect CPI inflation to average 5pc year on year in FY25, from over 20pc in FY23-FY24, on fading base effects from several rounds of energy price reforms, before picking up again to 8pc in FY26, in line with urban core inflation over the past few months,\u201d Fitch said. The agency added that the SBP held its policy rate steady at 12pc in March, noting pressures on the current account and persistent core inflation, after 1,000bp of rate cuts between May 2024 and January 2025. \u201cWe expect GDP growth to edge up to 3pc in FY25,\u201d it said. \u201cPakistan posted a current surplus of $700 million in 8MFY25 on surging remittances and favourable import prices,\u201d the agency said. \u201cImports picked up in early 2025, and we expect external deficits to widen from our forecast of a broadly balanced position for FY25 on stronger domestic demand.\u201d It said that, however, they should remain below 1pc of GDP in the coming years. \u201cWe think some informal FX demand management persists after the loosening exchange rate and import controls, and market reforms in 2023,\u201d the agency said. Fitch said that international trade tensions could hurt goods exports, with exports to the US, mostly textiles, accounting for 3pc of GDP (35pc of the total) in FY24. \u201cLower commodity import prices could soften the blow on the trade balance,\u201d it said. \u201cRemittances mostly come from the Middle East and tend to be resilient to the economic cycle,\u201d it added. \u201cPakistan has become less reliant on market and commercial financing in recent years, but market turmoil could still reduce access to loan funding.\u201d Fitch expected a further buildup of gross reserves after the SBP\u2019s purchase of foreign exchange in the interbank market brought them to under $18bn in March, from about $15bn at FYE24 and a low of less than $8bn in early 2023. \u201cMeasures of net foreign exchange reserves are much lower, reflecting foreign exchange reserve deposits of domestic commercial banks, a Chinese central bank swap line and bilateral deposits at the SBP.\u201d However, the agency still viewed gross reserves as the most relevant indicator of external liquidity.<\/p>\n","protected":false},"excerpt":{"rendered":"
Global ratings agency Fitch on Tuesday upgraded Pakistan\u2019s foreign currency credit rating to \u2018B-\u2019 from \u2018CCC+\u2019, citing increased confidence in the country\u2019s progress on narrowing…<\/p>\n","protected":false},"author":1,"featured_media":24013,"comment_status":"registered_only","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[16],"tags":[],"class_list":["post-24012","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"aioseo_notices":[],"jetpack_publicize_connections":[],"_links":{"self":[{"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/posts\/24012","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=24012"}],"version-history":[{"count":0,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/posts\/24012\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=\/wp\/v2\/media\/24013"}],"wp:attachment":[{"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=24012"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=24012"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.diplomacypakistan.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=24012"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}