Global credit rating agency Fitch has recognized Pakistan’s progress in restoring economic stability and strengthening external financial buffers.
In a statement on Friday, Fitch noted, “Pakistan has continued to make headway in restoring economic stability and rebuilding external buffers.”
Last year, the agency upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from CCC, following the country’s agreement with the International Monetary Fund (IMF). A CCC rating indicates a speculative or junk status, suggesting a high risk of debt default.
IMF Reviews and Structural Reforms Key to Economic Outlook
Fitch emphasized that Pakistan’s progress on structural reforms will be critical in securing upcoming IMF program reviews and continued financial support from multilateral and bilateral lenders.
The agency also highlighted a trend of disinflation, crediting the central bank’s tight monetary policy for helping ease inflationary pressures. Inflation dropped to 2.4% in January, marking a nine-year low, mainly due to a decline in perishable food prices.
Fitch explained that rapid disinflation was driven by:
- Fading base effects from earlier subsidy reforms,
- Exchange rate stability, and
- Restrictive monetary policy, which curbed domestic demand and external financing needs.
Economic Activity and Growth Prospects
Fitch pointed out that economic activity is now benefiting from stability and falling interest rates, after previously facing tight monetary policies.
“We expect real value-added GDP to expand by 3.0% in FY25,” the agency projected, adding that credit growth to the private sector turned positive in real terms in October 2024 for the first time since June 2022.
Current Account Surplus and Foreign Reserves
Fitch noted strong remittance inflows, robust agricultural exports, and tight fiscal policies had helped Pakistan’s current account (CA) surplus reach $1.2 billion—over 0.5% of GDP.
The agency credited foreign exchange market reforms in 2023 for this shift, adding that when it previously upgraded Pakistan’s rating to CCC+, it had anticipated a slight widening of the current-account deficit in FY25.
Additionally, foreign exchange reserves exceeded expectations, outperforming targets under the IMF’s $7 billion Extended Fund Facility and Fitch’s earlier forecasts.
“Gross official reserves reached over $18.3 billion by the end of 2024, covering about three months of external payments, up from $15.5 billion in June,” the agency reported.
