Fitch upgrades Pakistan rating after IMF-backed reforms

KARACHI/ISLAMABAD: Fitch Tuesday raised Pakistan’s credit rating, citing increased confidence in the country’s efforts to reduce budget deficits and implement structural reforms under the International Monetary Fund’s loan programme.

Pakistan’s rating was upgraded to B-’ from ‘CCC+’ amid expectations that tight economic policies will persist in supporting the recovery of international reserves and contain external funding needs, although implementation risks remain and financing needs are still large.

“Global trade tensions and market volatility could create external pressures, but risks are mitigated by the lower oil prices and Pakistan’s low dependence on exports and market financing,” the rating company said in a note.

US President Donald Trump has imposed a 10% baseline tariff on all imports to the US and increased duties on numerous other nations. Pakistan is currently subject to a 29% tariff, although this is under a 90-day pause announced by Trump last week.

Islamabad is expecting disbursements of $2.3 billion in two separate loans from the IMF: approximately $1 billion as the second installment of the $7 billion bailout secured last year and $1.3 billion under the Resilience and Sustainability Facility (RSF), pending approval by the IMF’s executive board.

Pakistan and the IMF reached a staff-level agreement in March on the first review of the country’s Extended Fund Facility and a new arrangement, RSF. “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,” Fitch said.

“We forecast the general government budget deficit to narrow to 6% of GDP in the fiscal year ending June 2025 (FY25) and around 5% in the medium term, from nearly 7% in FY24. Our FY25 forecast is conservative. We expect the primary surplus to more than double to over 2% of GDP in FY25,” it added.

“We expect a further buildup of gross reserves after the SBP’s purchase of FX in the interbank market brought them to just under USD18 billion in March 2025 (about three months of external payments), from about USD15 billion at FYE24 and a low of less than USD8 billion in early 2023.”

The rating agency upgraded Pakistan just one day after the nation received record-high remittances, reaching $4.1 billion in March.

An analyst at Topline Securities wrote in a note that Pakistan’s credit rating upgrade is significant for external accounts. This improvement will help the country secure cheaper commercial borrowings and access international capital markets for launching Sukuks and Eurobonds.

“We believe this rating upgrade will help in boosting the confidence of international investors in Pakistan’s economy and its reform agenda,” he said.

“We believe, following this upgrade, the other rating agencies (S&P and Moody’s) will also follow suit with a rating upgrade, as Pakistan is successfully continuing its fiscal consolidation phase, FX reserves of the central bank are expected to cross $14 billion by June 2025, and debt ratios of the country are also improving,” he added.

Mehtab Haider from Islamabad adds: Congratulating the nation on the upgrading of ratings by Fitch, Minister for Finance Mohammad Aurangzeb Tuesday said there would be no element of complacency and export-led growth would be pursued to ensure permanence.

In a televised speech, he said Fitch improved Pakistan’s ratings in the aftermath of IMF program and after witnessing improvement in the macroeconomic fundamentals with decline in inflation and buildup in the foreign reserves. He said the rate of electricity had declined recently.

The finance minister said remittances had hit a record $4.1 billion with expectations that these would touch the $38 billion mark for the current fiscal year. He said the recent Mineral Conference and Overseas Pakistanis Conference demonstrated restored confidence in Pakistan’s economy. Aurangzeb said Fitch improved their ratings after finding stability in achieving macroeconomic stability. “Last year when they improved ratings, they raised questions about the sustainability of the reform agenda. Now they have posed their confidence,” he added.

The minister said there was no element of complacency, as the country would have to pursue reforms to come out from the boom & bust cycles. He said Pakistan had come to such a juncture in the past as well but then balanced growth could not be sustained so the country plunged into a balance of payment crisis. This time, it will not be allowed, he said.