Global rating agency Fitch on Tuesday upgraded Pakistan’s foreign exchange credit rating from ‘B-‘ to ‘CCC+’, which increased the confidence in reducing the lack of its budget in the country’s progress.
The upgrade also shows confidence that the country will implement structural reforms, supporting the performance of its International Monetary Fund (IMF) program and availability of funding, Fitch said.
The agency said that although ongoing global trade tension can cause external pressure, its low dependence on export and market financing should reduce risks.
The economy was on the verge of default since the records of inflation reached a high level in May 2023 and began to shrink the reserves, but saw some relief thanks to the IMF for a $ 7 billion bailout program.
In March, the IMF reached a new deal with Pakistan, which could unlock $ 1.3 billion in cash.
According to the update on Fitch’s website, Pakistan performed well on quantitative performance criteria, especially on reserve accumulation and primary surplus, although tax revenue growth decreased by its symbolic target.
“Provincial governments have also increased agricultural income tax, a major structural benchmark,” said this.
“It follows Pakistan’s strong performance on its previous, more temporary system, which ended in April 2024,” said this.
The agency predicted that the government budget deficit would be narrowed by 6 percent of the GDP in the financial year ending in the financial year and about 5PC in the medium period, about 7PC in FY14.
The agency said, “Our FY25 forecast is conservative. We expect more and more primary surplus from GDP’s 2PC in FY25.”
“Tax reduction in tax revenue, minimal inflation and imports will be offset in parts, low cost and wide provincial surpluses,” saying that in recent years the gaps of high domestic interest rates in recent years weigh on the fiscal performance, but also left the State Bank of 2PC of 2PCs.
“Government loan/GDP fell from 75PC to 67pc in FY 25, and we estimate gradual decline in the medium period, tight fiscal policy, nominal growth and a recurrence of domestic loans at low rates,” said this.
However, the agency said, due to the rapid decline in inflation, the loan ratio will survive in FY 25 and the forecast of more than 50PC will be above the ‘B’ Madhyika.
“Interest payment/revenue ratio, which we predict on 59PC in FY25, will be narrow, but about 13PC’s ‘B’ will remain well over the median, looking at a high part of domestic debt and a narrow revenue base,” said this.
“We expect CPI inflation that the average of 5PC year in FY25, more than 20PC in FY 23-FY24, on several rounds of energy price improvements from several rounds of energy price reforms, in the last few months, in the last few months, in line with urban core inflation, FY26, before taking again at 8PC,” Fitch said “Fitch said.
The agency stated that SBP kept its policy rate stable on 12PC in March, pressurizing the current account and consistent core inflation after a cut in 1,000BP rate between May 2024 and January 2025.
“We hope GDP development will grow up to 3PC in FY 25,” said this.
The agency said, “Pakistan posted an existing surplus of $ 700 million in 8mfy25 and on remittances and favorable import prices,” the agency said.
“The import was raised in early 2025, and we hope to widen the external deficit from our forecast of a widely balanced position for FY25 on strong domestic demand.”
It said that, however, they should stay below 1PC of GDP in the coming years.
The agency said, “We feel that some informal FX demand management 2023 persists after exchange rate and import control and market reforms.”
Fitch said that international trade tension can damage freight, with exports to the US, most of the textiles, accounting for GDP’s 3PC (35PC) in FY 25.
“Low commodity import prices can soften the shock over business balance,” said this.
“Relations come mostly from the Middle East and are flexible to the economic cycle,” it said.
“Pakistan has become less dependent on market and commercial financing in recent years, but the market turmoil can still reduce the access to debt funding.”
Fitch hoped that another construction of gross reserves was expected after the purchase of SBP’s foreign currency in the interbank market, which reduced them by $ 18bn in March, about $ 15bn at FYE24 and less than $ 8BN in early 2023.
“Measures for net foreign exchange reserves are very few, which reflect Forex Reserve deposits of domestic commercial banks, a Chinese central bank swap line and bilateral deposits in SBP.”
However, the agency has still seen gross reserves as the most relevant indicator of external liquidity.
