Fitch Ratings, an American credit rating agency, has indicated that Pakistan’s dependence on the successful implementation of the International Monetary Fund (IMF) program and its official support will persist for the next few years.
The agency, which has elections occurring in nearly half of its rated portfolio of Asia Pacific (APAC) sovereigns in 2024, including Pakistan where general polls are scheduled for February 8, noted in its forecast report that election outcomes could impact credit profiles, especially in countries like Pakistan and Sri Lanka, both relying on IMF assistance.
The report highlighted that reform momentum has slowed in the lead-up to elections, and the policy agendas of the incoming governments could influence credit profiles, although policy continuity is generally expected to be the prevailing theme.
Fitch acknowledged the potential for uncertainty during elections and emphasized that the Asia-Pacific region is expected to remain resilient in 2024 despite challenges such as slowing global growth, high yields, geopolitics, and lingering property-sector issues in China.
In 2023, rating actions were primarily focused on frontier markets, with Pakistan experiencing a downgrade to ‘CCC-‘ in February and a subsequent upgrade to ‘CCC’ in July, both attributed to changes in its external financing outlook.
The forecast for APAC sovereigns anticipates higher GDP growth compared to their peers in other regions. However, Fitch expects growth below the peer median for a few APAC countries, including Japan, New Zealand, and Pakistan. The agency suggests that growth will be supported by a gradual upturn in the global tech cycle and robust domestic demand in certain regions.
Fitch noted that fiscal outlooks will vary across APAC sovereigns, with high borrowing costs and modest fiscal deficit reductions leading to rising debt ratios in about half of these countries in 2024, despite solid growth rates. The report specifically mentioned that China is facing increasing challenges due to a rising government debt ratio combined with significant contingent liabilities.
In conclusion, Fitch’s forecast outlines the key factors influencing credit profiles in the Asia-Pacific region, emphasizing the impact of elections, the importance of IMF support for certain countries, and the overall resilience of the region in the face of various challenges.
