Fitch upgrades Pakistan’s rating to ‘CCC+’

International credit rating agency Fitch has upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) from CCC to CCC+.

Fitch highlighted the strong performance under the previous IMF arrangement, which helped Pakistan narrow its fiscal deficits and rebuild foreign exchange reserves.

Fitch expects IMF board approval for the $7 billion, 37-month program by the end of August.

However, the government must secure new funding assurances from bilateral partners, mainly Saudi Arabia, the UAE, and China, totalling about $4-5 billion over the duration of 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),” Fitch noted.

On the external front, Fitch noted that Pakistan’s foreign exchange reserves have recovered but remain low. The State Bank of Pakistan (SBP) is rebuilding FX reserves amid new funding inflows and limited CADs, with official gross reserves, including gold, rising to over $15 billion by June 2024. This is expected to increase to nearly $22 billion by the end of FY26, approaching their 2021 peak.

Fitch pointed out that the SBP’s net liquid FX reserves, excluding gold and FX reserve deposits of banks, recovered to over $9 billion by June 2024. The SBP has reduced its forward liabilities to local banks and is nearing a balanced net foreign asset/liability position.

Politically, Fitch expressed concerns that the close outcome of the February elections delivered a weaker-than-expected mandate for Prime Minister Shehbaz Sharif’s PMLN party.

“PMLN and its allies command only a slim majority in the National Assembly after a recent Supreme Court ruling re-allocating reserved seats in favour of independents linked with former prime minister Imran Khan’s PTI party. Khan has been in prison since May 2023 but remains popular,” Fitch noted.