Fitch upgrades Pakistan’s credit rating to B- on external outlook

Fitch Ratings has raised Pakistan’s Long-Term Foreign-Currency Issuer Default Rating to ‘B-‘ from ‘CCC+’, noting greater fiscal consolidation efforts and improved external stability.

This is Pakistan’s first improvement in over six years. The forecast has been updated to stable, as observed in 2018.

The rating agency expressed increasing confidence in Islamabad’s ability to reduce budget deficits and implement structural reforms under the International Monetary Fund (IMF) programme.

Fitch highlighted that while restrictive economic policies could assist in rebuilding international reserves, funding requirements remain large.

Global trade uncertainties and security challenges, particularly near the Afghan border and in Balochistan, dampen the outlook.

In March, Pakistan reached a staff-level agreement with the IMF to extend its $7 billion Extended Fund Facility and a new $1.3 billion Resilience and Sustainability Facility until mid-2027.

The agency expects Pakistan’s budget deficit to fall to 6% of GDP in the fiscal year ending June 2025, down from about 7% a year ago, as the country met key benchmarks for reserves and primary surpluses while tax revenue lagged

The primary surplus is expected to more than double, reaching over 2% of the GDP.

Government debt declined to 67% of GDP in FY24, down from 75% a year earlier, and is expected to continue to decline in the medium term.

However, Fitch predicted that the debt ratio would rise in FY25 due to a strong decline in inflation before resuming its downward trend.

Consumer inflation is expected to average 5% in FY25, down from more than 20% the previous two years, owing to fading base effects from energy price reforms.

External accounts improved, with a $700 million current account surplus in the first eight months of FY25, driven by strong remittances and lower import costs.

Gross reserves increased to about $18 billion in March 2025, covering approximately three months of imports, from $8 billion in early 2023.

Despite the optimistic forecast, Pakistan faces $8 billion in external debt repayments in FY25 and $9 billion the following year, excluding routinely rolled bilateral loans.

The government acquired $4 billion in external funding in the first half of FY25 and plans to raise an additional $10 billion by the end of the year.

Prime Minister Shehbaz Sharif expressed satisfaction, saying the improved rating reflects global confidence in Pakistan’s economy and underscores the government’s tireless efforts to steer the country toward economic stability and development.