Fitch Ratings has upgraded Pakistan’s long-term foreign currency issuer Standard rating to ‘B-‘ from ‘CCC+’, citing stronger fiscal consolidation efforts and improving external stability.
This marks Pakistan’s first upgrade in almost six years. The prospects have been revised to stable, last seen in 2018.
The rating agency pointed to increased confidence in Islamabad’s ability to narrow budget deficits and pursue structural reforms under its International Monetary Fund (IMF) program.
Fitch emphasized that although tight economic policies should help rebuild international reserves, financing needs remain significant.
Global trade risks and security challenges, especially near the Afghan border and in Balochistan, also weigh the prospects.
In March, Pakistan secured a staff agreement with the IMF at its expanded fund facility of $ 7 billion and a new $ 1.3 billion resilience and sustainability facility, both of which extend to mid-2027.
The country met key targets for reserves and primary profits, although tax revenue underpinned.
The agency predicts Pakistan’s budget deficit to shrink to 6% of GDP in the financial year ending June 2025, down from almost 7% a year earlier.
The primary surplus is expected to more than double to over 2% of GDP.
Government debt fell to 67% of GDP in FY24 from 75% one year earlier and is expected to gradually fall in the medium term.
However, Fitch noted that the debt quota would go up in FY25 due to a sharp decrease in inflation before resuming its downward orbit.
Consumer inflation is expected to average 5% in FY25, from over 20% in the previous two years, on the back of fading basic effects from energy price reforms.
External accounts showed improvements with a $ 700 million profit in the first eight months of FY25, supported by strong transfers and lower import costs.
Gross reserves rose to almost $ 18 billion in March 2025 and covered about three months of imports compared to $ 8 billion at the beginning of 2023.
Despite the positive prospects, Pakistan faces $ 8 billion in external refund of debt in FY25 and $ 9 billion the following year, exclusive routinely rolled bilateral loans.
The government secured $ 4 billion in external funding in the first half of FY25 and aims to raise $ 10 billion more at the end of the year.
Fitch maintained concern over Pakistan’s weak governance and awarded it the lowest ESG management score, quoting fragile institutional quality and the rule of law.
