KARACHI: Fitch Ratings, the global credit rating agency, upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) from CCC to CCC+.
This upgrade was attributed to the country’s recent agreement with the International Monetary Fund (IMF), according to a statement from the agency.
In a statement the 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.
“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 for a $7 billion, 37-month programme for Pakistan by end-August.
However, before the approval, “the government will have to obtain new funding assurances from bilateral partners, chiefly Saudi Arabia, the UAE and China, totaling about $4-5 billion throughout 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 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.
Last year, the Fitch maintained Pakistan’s ratings to CCC, saying that the rating reflects “high external funding risks amid high medium-term financing requirements”.
Fitch also noted that although the country’s foreign exchange reserves (FX) have recovered, they still remained low.
It highlighted that the State Bank of Pakistan (SBP) “is rebuilding FX reserves amid inflows of new funding and limited CADs [Current Account Deficit]”.
“We estimate official gross reserves, including gold, rose to over $15 billion at June 2024 (about three months of imports), from nearly $10 billion at end-June 2023,” it said, adding that the agency expected “them to rise to nearly $22 billion by FY26, close their 2021 peak”.
