Reduced risk of default: Fitch likely to upgrade Pak rating from CCC+ to BBB

ISLAMABAD: With the halt of USAID operations by President Donald Trump, Pakistan’s total portfolio of $445 million has been affected over five years, surfacing a gap of $40 million for the current fiscal year for on-budget development projects.

“However, in a positive development on the external front, Fitch Ratings might upgrade Pakistan’s rating within a few days”, top official sources confirmed while talking to The News on Monday. The Fitch might upgrade from a notch of CCC+ to BBB keeping in view the reduced risk of default.

On USAID, the sources said it used to operate in Pakistan through on-budget and off-budget financing of development projects, and the halting of its operations has caused a setback for neglected social sectors.

“With terminations of USAID funded projects in Pakistan, the Development Coordination Committee (DCC) made a fresh formal request to multilateral and bilateral international donors to fill the financing gap of $80million to $100million due to scarcity of funding created through USAID, UNDP and another development partners for the current fiscal year 2024-25,” top officials confirmed while talking to The News here on Monday.

The DCC met under the Chairmanship of Secretary Economic Affairs Division (EAD) Kazim Niaz whereby the Government of Pakistan made a fresh request to fill the gap created through the termination of USAID-funded projects. “We have received information about termination of developmental aid from USAID headquarters for off-budget funding,” said a source affiliated with International Non-Governmental Organizations (INGOs) and added that they were simply clueless about how the funding would flow for future projects in Pakistan. The international donors are engaged in the preparation of budgetary cycles so Islamabad prefers to make its request in the aftermath of the termination of funding of the projects from the USAID. “Islamabad asks international donors to fill the financing gap for education, health, and humanitarian assistance,” said the official sources but the donors did not give any firm commitment instantly because they will have to seek approval from their top notches. One donor representative told this scribe in background discussions after the DCC meeting that they were also walking on a tightrope and facing difficulties in materializing their commitments and they will seek consent from their headquarters before making any commitments.

Pakistan faces a financing gap of $80million to $100million on account of USAID, UNDP, and OCHA (United Nations Office for the Coordination of Humanitarian Affairs). The DCC also discussed the overall financing gap from international donors, aid effectiveness under the Paris Declaration and the Trade Fair preparation of Pakistan scheduled to be organized in Spain in June 2025.

Pakistan has so far received total disbursement of loans to the tune of $6 billion from international lenders including $1 billion from the IMF during the first eight months (July-Feb) period against envisaging total external loans of $19.4 billion for the current fiscal year. Islamabad expects disbursement of $1 billion from the IMF in May 2025 under the Extended Fund Facility along with a couple of million dollars through the fresh lending facility of RSF for Climate Finance.