Fitch Ratings stressed that Pakistan’s ability to continue to progress with structural reforms will be a decisive factor to shape its credit prospects in the years to come.
As the country aims to restore economic stability and strengthen external financial reserves, the success of these reforms will be essential in maintaining access to multilateral and bilateral financing, in particular the International Monetary Fund (IMF).
The recent economic progress in Pakistan has been supported by a series of political decisions, including the drop in the state bank of Pakistan in the policy rates at 12% on January 27, 2025. This decision reflects improvements in the management of Inflation, with consumer price inflation to just over 2 % from one year to the next in January 2025, compared to almost 24 % in FY24.
Fitch stressed that this disinflation trend, as well as the stability of exchange rates and a tight monetary policy position, have reduced domestic demand and external financing needs, providing relief to the country’s financial situation.
Positive growth in the midst of structural adjustments
The prospects of the Pakistani economy during the 2010 financial year seem optimistic, Fitch providing for real GDP growth of 3.0%. The country’s efforts to absorb stretch policy parameters allowed him to benefit from a drop in interest rates, and credit growth in the private sector has become positive in real terms for the first time since June 2022.
The Pakistan current account also experienced an improvement, with an excess of approximately 1.2 billion USD in the six months until December 2024, compared to a deficit in the previous year. Strong funds, robust agricultural exports and exchange reforms contributed to this positive change.
However, Fitch noted that if the reserves reached $ 18.3 billion by the end of 2024 – equivalent to approximately three months of current external payments – Pakistan still faces significant external financing needs. The country has more than $ 22 billion in public external debts maturation during the 2010 financial year, including $ 13 billion in bilateral deposits.
Fitch expects the bilateral partners of Pakistan, including Saudi Arabia and the United Arab Emirates, honor their commitments to relaunch these funds, but external liquidity remains a key concern.
Upcoming challenges: financing and reforms
The prospects for Pakistan’s credit profile depends on its ability to obtain sufficient external funding and to continue its structural reform efforts. The government has budgeted for $ 6 billion in multilateral funding for the 2010 financial year, but much of this will refinance the existing debt.
Recent announcements, such as a frame of $ 20 billion over 10 years with the World Bank group, represent positive stages but will require careful management.
Fitch pointed out that, although budgetary reforms are growing, Pakistan faces challenges to achieve the objectives of the IMF, in particular in the fields of the growth of tax revenue and the timely implementation of the legislation on ‘Agricultural income tax.
Delays in structural reforms could complicate the country’s efforts to maintain a stable economic trajectory.
Perspectives: Risks and opportunities
For the future, Fitch believes that positive rating actions for Pakistan could be motivated by a sustained recovery in foreign reserves, the more relaxation of the risks of external financing or the implementation of budgetary consolidation measures in accordance with commitments IMF.
However, any delay in IMF journals or the worsening of external liquidity could lead to negative credit actions.
In conclusion, although Pakistan has made significant progress to meet its economic challenges, the way to follow depends on the continuous implementation of structural reforms, the stabilization of external funding and the country’s ability to manage the deadlines for important public debt during the coming fiscal year.
The current reform program will be the key to ensuring a stable perspective for the country’s credit profile.
