Fitch upgrades Pakistan’s rating to CCC+

Another positive development on the country’s economic front as Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’ from ‘CCC’.

In a statement released on Monday, the Fitch rating agency said “The upgrade reflects greater certainty over continued availability of external funding, in the context of Pakistan’s staff-level agreement (SLA) with the IMF on a new 37-month USD7 billion Extended Fund Facility (EFF).”

It said that strong performance on the previous, more temporary IMF arrangement helped Pakistan narrow fiscal deficits and rebuild foreign exchange (FX) reserves, and further improvements are likely. “Nevertheless, Pakistan’s large funding needs leave it vulnerable if it fails to implement challenging reforms, which could undermine programme performance and funding,” it warned.

Fitch expects IMF Board approval the $7 billion, 37-month programme for Pakistan by August-end. However, before the approval, “the government will have to obtain new funding assurances from bilateral partners, chiefly Saudi Arabia, the UAE and China, totalling about $4-5 billion over the duration of the EFF.

“We believe this will be achievable, given the strong past record of support and significant policy measures in the recent budget for the fiscal year ending June 2025 (FY25),” it said.

On the previous IMF programme, Fitch said that Pakistan successfully completed its nine-month Stand-by Arrangement with the global lender in April. “Over the past year, the government raised taxes, cut spending and raised electricity, gas and petrol prices. The government also all but eliminated the gap between the interbank and parallel market exchange rates through a crackdown on the black market and regulation of exchange houses,” it said.

It may be noted that Fitch does not assign outlooks to sovereigns with a rating of CCC+ or below. Back in December 2023, Fitch maintained Pakistan’s rating to CCC, saying the rating reflects “high external funding risks amid high medium-term financing requirements”.

Reporter Waqas Azeem Sheikh