ISLAMABAD: In a significant boost to investor confidence, Fitch Ratings on Tuesday upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘CCC+’ to ‘B-’, citing improved fiscal management and sustained progress on structural reforms. The agency also maintained Pakistan’s outlook as stable.
“The upgrade reflects Fitch’s increased confidence that Pakistan will sustain its recent progress on narrowing budget deficits and implementing structural reforms, supporting its IMF programme performance and funding availability,” Fitch Ratings said in a statement on Tuesday.
“We also expect tight economic policy settings to continue to support the recovery of international reserves and contain external funding needs, although implementation risks remain and financing needs are still large.”
The global credit rating agency noted that while global trade tensions and market volatility may pose external risks, these are largely offset by lower oil prices and Pakistan’s limited reliance on exports and market-based financing.
Regarding Pakistan’s ongoing programme with the International Monetary Fund (IMF), the agency stated that the country has performed well in meeting quantitative performance targets—especially in terms of reserve accumulation and achieving a primary fiscal surplus.
However, it also pointed out that growth in tax revenues fell short of the indicative target.
“Provincial governments have also legislated increases in agricultural income tax, a key structural benchmark. This follows Pakistan’s strong performance on its previous, more temporary arrangement, which expired in April 2024,” it said.
“Our FY25 forecast is conservative. We expect the primary surplus to more than double to over 2% of GDP in FY25. Shortfalls in tax revenue, in part due to lower-than-expected inflation and imports, will be offset by lower spending and wider provincial surpluses.”
Fitch noted that the delayed impact of high domestic interest rates in recent years continues to affect fiscal performance. However, these same rates also contributed to the State Bank of Pakistan (SBP) delivering an exceptional dividend to the government, amounting to 2% of GDP in FY25.
The agency further stated that Pakistan’s debt-to-GDP ratio is expected to gradually decline over the medium term.
This outlook is supported by a combination of tight fiscal policy, nominal economic growth, and the repricing of domestic debt at lower interest rates.
“Nevertheless, the debt ratio will still tick up in FY25 due to a rapid decline in inflation and will remain above the forecast ‘B’ median of just over 50%.”
Whereas, the interest payment/revenue ratio, “which we forecast at 59% in FY25, will narrow, but remain well above the ‘B’ median of about 13%, given a high share of domestic debt and a narrow revenue base.”
Fitch expects CPI inflation in Pakistan to average 5% YoY in FY25, from over 20% in FY23-FY24, before picking up again to 8% in FY26, in line with urban core inflation over the past few months.
“We expect GDP growth to edge up to 3% in FY25,” it said.
On the external front, Fitch noted that Pakistan posted a current account (C/A) surplus of $700 million in 8MFY25 on surging remittances and favourable import prices.
“Imports picked up in early 2025, and we expect external deficits to widen from our forecast of a broadly balanced position for FY25 on stronger domestic demand. Nevertheless, they should remain below 1% of GDP in the coming years.
“We think some informal FX demand management persists after the loosening exchange rate and import controls, and market reforms in 2023.”
Fitch warned that international trade tensions could hurt Pakistan’s goods exports, with exports to the US, mostly textiles, accounting for 3% of GDP (35% of the total) in FY24.
“Lower commodity import prices could soften the blow on the trade balance,” it said.
It noted that remittance inflows, Pakistan’s main source of external receipts, mostly come from the Middle East and tend to be resilient to the economic cycle.
“Pakistan has become less reliant on market and commercial financing in recent years, but market turmoil could still reduce access to loan funding,” it said.
“We expect a further buildup of gross reserves after the SBP’s purchase of FX in the interbank market brought them to just under $18 billion in March 2025 (about three months of external payments), from about $15 billion at FYE24 and a low of less than $8 billion in early 2023,” it said.
It added that the government will face about $9 billion in external debt maturities in FY26 after over $8 billion in FY25 (nearly $5 billion in 2HFY25).
Fitch noted that governments from across the political spectrum in Pakistan have had a mixed record of IMF programme performance, often failing to implement or reverse the required reforms.
“The current apparent consensus within Pakistan on the need for reform could weaken over time. Technical challenges will also be significant,” it said.
Finance Minister Aurangzeb welcomes Fitch’s upgradation
Pakistan Finance Minister Muhammad Aurangzeb has welcomed Fitch Ratings’ upgrade of Pakistan’s ratings to ‘B-’ from ‘CCC+’.
He added that the development shows the confidence of Fitch in the economic policies of the government of Pakistan.
He said Fitch Ratings has upgraded Pakistan’s rating after three years and has declared the country’s outlook as stable.
The Finance Minister added that the development will further strengthen the government’s economic agenda.
He noted that after this upgrade, more investment, trade, increased employment opportunities, industrial development and additional financial resources will be available in the country.
He vowed that the government would continue the journey of economic reforms and economic stability.
Muhammad Aurangzeb was confident that Pakistan’s economy would further improve and stabilise in the coming days.
