Fitch Ratings has outlined that Pakistan’s ability to continue moving forward with structural reforms will be a decisive factor in designing its credit prospects in the coming years.

As the country aims to restore economic stability and strengthen external economic reserves, the success of these reforms will be a central form of maintaining access to multilateral and bilateral funding, especially from the International Monetary Fund (IMF).

Pakistan’s recent economic progress has been supported by a number of political decisions, including the State Bank of Pakistan’s cut in political rates to 12 % on January 27, 2025. This step reflects improvements in inflation management, where the consumer price falls to just over 2 % year to year in January 2025 from almost 24% in FY24.

Fitch highlighted that this disinfection trend, along with currency -curing stability and a tight monetary policy attitude, has reduced domestic demand and external financing needs, bringing relief to the country’s financial situation.

Positive growth in the middle of structural adjustments

The outlook for Pakistan’s economy in FY25 seems optimistic, with Fitch, which predicts 3.0% real GDP growth. The country’s efforts to absorb tighter political settings have allowed it to benefit from lower interest rates, and credit growth in the private sector has turned positive in real terms for the first time since June 2022.

Pakistan’s current account has also seen improvements with a profit of approx. 1.2 billion USD in the six months to December 2024 compared to a deficit in the previous financial year. Strong transfers, robust agricultural exports and currency forms have contributed to this positive shift.

However, Fitch noted that while reserves reached $ 18.3 billion by the end of 2024 – equivalent to about three months of current external payments – Pakistan is still facing significant external financing needs. The country has over $ 22 billion in public external debt, maturing in FY25, including $ 13 billion in bilateral deposits.

Fitch expects Pakistan’s bilateral partners, including Saudi Arabia and UAE, will honor their obligations to roll these funds, but external liquidity is still an important problem.

Challenges ahead: Financing and Reforms

The outlook for Pakistan’s credit profile is linked to its ability to ensure sufficient external financing and continue its structural reform efforts. The government has budgeted for $ 6 billion in multilateral financing for FY25, but much of this will go to refinancing the existing debt.

Recent messages, such as a $ 10 billion 10-year-old framework with the World Bank Group, represent positive steps, but require careful control.

Fitch emphasized that although fiscal reforms are moving forward, Pakistan faces challenges in meeting the IMF targets, especially in the field of tax revenue growth and the timely implementation of the law on agricultural income tax law.

Delays in structural reforms can complicate the country’s efforts to maintain a stable economic course.

Outlook: risks and options

Looking ahead, Fitch believes that positive rating for Pakistan could be driven by a sustained improvement in foreign reserves, further relief of external financing risks or the implementation of fiscal consolidation measures in accordance with IMF obligations.

However, any delays in IMF reviews or exacerbate external liquidity may result in negative credit actions.

Finally, while Pakistan has made significant progress in tackling its financial challenges, the path remains forward depending on the continued implementation of structural reforms, stabilizing external funding and the country’s ability to manage large public debt orders in the coming financial year.

The ongoing reform agenda will be the key to ensuring a stable view of the country’s credit profile.