Karachi (Web Desk): Fitch Ratings has acknowledged Pakistan's progress in stabilizing its economy and bolstering external reserves, highlighting that the country’s recent economic recovery could help attract continued financial support from multilateral and bilateral lenders.
The rating agency pointed to the State Bank of Pakistan's (SBP) move to lower the policy rate to 12% in late January as a sign of the country’s success in curbing inflation, which had dropped sharply to just over 2% in January 2025, compared to the nearly 24% rate seen during the fiscal year 2024.
The disinflationary trend was attributed to the fading impact of earlier subsidy reforms, a stable exchange rate, and a tighter monetary stance that had curbed domestic demand and reduced the need for external financing.
Fitch further noted that the Pakistani economy is benefiting from the combination of a stable environment and declining interest rates, which have boosted economic activity.
As a result, the agency projected a 3.0% growth rate for Pakistan’s real GDP in the fiscal year 2025, marking a positive shift after the country faced an extended period of economic challenges. Private sector credit growth also showed signs of recovery, turning positive in real terms for the first time in over two years.
The country’s external position has also improved, with a current account surplus of about $1.2 billion recorded in the first half of FY25, a notable reversal from the previous fiscal year’s deficit. Strong remittances, steady agricultural exports, and stringent fiscal measures played a role in this shift.
While the increase in foreign exchange reserves has been encouraging, rising to over $18.3 billion by the end of 2024, Fitch pointed out that reserves remain insufficient relative to Pakistan’s external debt obligations.
The country faces more than $22 billion in maturing public external debt in FY25, including substantial bilateral deposits, though the agency expects most of these obligations to be rolled over, with the Saudi and UAE governments already confirming support.
Despite these positive developments, Fitch cautioned that the road ahead remains challenging. External financing needs are still substantial, with around $6 billion of multilateral funding expected in FY25, a portion of which would go toward refinancing existing debt.
Additionally, while fiscal reforms have progressed, setbacks such as delays in implementing higher agricultural income taxes have raised concerns about meeting key conditions set by the International Monetary Fund (IMF).
The successful continuation of reforms and timely approval of IMF program reviews will be crucial in securing continued support and avoiding negative rating actions, Fitch concluded.