Fitch Confirms Pakistan Rating at B- with Stable Outlook

Pakistan’s long-term foreign currency issuer default rating of “B-” with a “stable outlook” was confirmed by Fitch Ratings on Monday.

“Pakistan’s rating affirmation reflects progress on fiscal consolidation and macro stability measures, broadly in line with its International Monetary Fund (IMF) programme and supporting its funding capacity. Foreign exchange buffers rebuilt over the past year provide a cushion against the economic impact of the war in the Middle East, while Pakistan’s role as a ceasefire broker may provide tangible benefits and partly offset external pressures,” , the agency released a statement.

The US-based organization emphasized that the nation’s high vulnerability to the shock to global energy prices remained a major danger, especially if it resulted in a significant decline in foreign exchange reserves.

Fitch highlighted important rating factors and stated that in March, the authorities and the IMF came to a staff-level agreement on the IMF’s loan programs, opening up a total of $1.2 billion.

It further stated that the program will assist mobilize more bilateral and international support and will continue to serve as a crucial policy anchor, especially for the fiscal framework.

“Pakistan sources up to 90% of oil from the Gulf and has limited storage capacity, creating high exposure to the Middle East conflict and constricted energy supply via the Strait of Hormuz,”, it said that the gasoline subsidies since early March had been financed by reallocating funds from other budgetary categories, and that significant increases in pump prices and the transition to a more focused support program starting in April had lowered expenses.the switch to a more targeted support scheme from April.

“We expect the overall impact on the fiscal deficit to be contained, as the government is likely to cut other spending,”, the rating agency further said.

According to the rating agency, rising global energy prices will cause inflation to rise in the upcoming months, particularly with the shift to more targeted base effects and subsidy support.

“We expect inflation to average 7.9% in FY26 (ending 30 June 2026), above the FY25 level but well below the 23.4% in FY24,” it continued.

Market interest rates decreased concurrently with the State Bank of Pakistan’s (SBP) reduction of the policy rate from 22.0% at the end of May 2024 to 10.5% by the end of 2025. But by early April, the term interbank rate had increased to roughly 100 basis points above the policy rate because to worries about inflation brought on by the limited supply of energy.

“The shock will detract from GDP growth, but we still expect growth of 3.1% in FY26, up slightly from 3.0% in FY25, due to improved confidence from lower borrowing costs,” the agency added.

The rating agency projected that external debt amortizations would increase from about $8 billion in FY25 to $12.8 billion (2.9 percent of GDP) in FY26.

It projected that external loan amortizations would increase from about $8 billion in FY25 to $12.8 billion (2.9 percent of GDP) in FY26. According to the agency, the United Arab Emirates (UAE) received a $3.5 billion deposit back in April. It stated that an additional $9.2 billion in bilateral deposits and loans that are anticipated to be rolled over are not included in the amortization estimates.

“We anticipate that the IMF and other bilateral and multilateral inflows will be the primary sources of debt financing, with commercial lending coming in second. This fiscal year, Pakistan intends to issue a panda bond, the statement continued.