ISLAMABAD: Fitch Ratings has upgraded Pakistan’s credit rating, citing reduced external financing risks following a fresh bailout from the International Monetary Fund (IMF).
The rating agency has upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) to CCC+ from CCC. Fitch typically does not assign outlooks to sovereigns rated CCC+ or below.
Although the upgrade is still below investment grade, it indicates a lower probability of failure, analysts said in response to the development.
However, the agency warned that a renewed deterioration in external liquidity conditions, a delayed review of IMF programs or indications that the authorities are considering debt restructuring could lead to a downgrade in the future.
“The upgrade reflects greater certainty about the continued availability of external financing in the context of Pakistan’s SLA (Staff Level Agreement) with the IMF for a new 37-month US$7 billion EFF (Enhanced Fund Facility),” Fitch said in a release. released on Monday.
According to the rating agency, the strong performance of the previous, more temporary IMF arrangement helped the country reduce fiscal deficits and restore foreign exchange reserves, and further improvements are likely.
“However, Pakistan’s large financial needs will leave it vulnerable if it fails to implement challenging reforms that could undermine program performance and funding,” it warned.
Fitch said Pakistan and the IMF reached an SLA on July 12.
The rating agency highlights the fiscal struggles ahead for Pakistan, noting that before likely IMF board approval by the end of August, the government will need to secure new financing assurances from bilateral partners, notably Saudi Arabia, the United Arab Emirates and China, totaling about 4 USD. billion-5 billion across the EFF.
“We believe this can be achieved, given the strong support and significant policy measures in the recent budget for the fiscal year ending June 2025 (FY25),” Fitch said.
It said Pakistan completed its nine-month stand-by deal with the IMF in April, while raising taxes, cutting spending and raising electricity, gas and gasoline prices last year.
The agency found that the government has also nearly closed the gap between interbank and parallel market exchange rates through a crackdown on the black market and regulation of exchange offices.
Pakistan has struggled with boom and bust cycles for decades, leading to 22 IMF bailouts since 1958. The IMF is currently the fifth largest debtor, owing $6.28 billion as of July 11, according to the lender’s data.
The latest economic crisis was the longest and saw the highest level of inflation in history, which brought the country to the brink of sovereign bankruptcy before the IMF bailout last summer.
The conditions of the program have become stricter. The latest rescue package is aimed at cementing stability and inclusive growth in the crisis-hit South Asian country, the IMF said.
