Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating from ‘CCC+’ to ‘B-’, maintaining a stable outlook. The upgrade reflects improved fiscal discipline, structural reforms, and Pakistan’s progress under the International Monetary Fund (IMF) programme.
Fitch said it sees stronger policy implementation and increased chances of Pakistan maintaining recent economic gains. Continued tight monetary and fiscal policies are expected to support the rebuilding of foreign exchange reserves and manage external financing pressures. However, Fitch warned that large funding needs and implementation risks persist.
The agency noted Pakistan’s strong performance in meeting IMF targets, particularly in reserve accumulation and maintaining a primary fiscal surplus, though tax revenue growth fell short. Provinces have also moved to raise agricultural income tax, meeting a key structural reform benchmark.
Fitch projects the fiscal deficit to narrow to 6 per cent of GDP in FY25, from nearly 7 per cent in FY24, and to fall further to around 5 per cent in the medium term. A primary surplus of over 2 per cent is expected, supported by reduced spending and higher provincial surpluses, despite weaker tax revenue due to lower inflation and imports. The State Bank of Pakistan’s dividend, equivalent to 2 per cent of GDP, also supports the fiscal outlook.
Pakistan’s debt-to-GDP ratio is expected to decline gradually, though it will remain above the ‘B’ rating median. Interest payments will continue to consume a large portion of revenue, with Fitch forecasting a 59 per cent interest-to-revenue ratio in FY25—well above peer levels.
Inflation is forecast to average 5 per cent in FY25, down sharply from over 20 per cent in previous years. GDP growth is expected to improve to 3 per cent.
On the external front, Pakistan posted a $700 million current account surplus during the first eight months of FY25, driven by remittances and lower import prices. Reserves rose to nearly $18 billion by March 2025.
Fitch cautioned that global trade tensions and political instability could undermine reform momentum. Pakistan faces over $8 billion in external debt repayments in FY25 and about $9 billion in FY26, making continued funding and policy discipline critical.
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