TLDR:
• Fitch upgrades Pakistan’s rating to ‘B-‘
• Fiscal reforms and IMF progress noted
• External risks and political challenges remain
ISLAMABAD (The Thursday Times) — Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘CCC+’, with a stable outlook. This reflects increased confidence in Pakistan’s fiscal consolidation efforts and progress under the IMF programme.
Fiscal consolidation and structural reforms
The upgrade is attributed to Pakistan’s narrowing budget deficits and implementation of structural reforms. The fiscal deficit is projected to decrease to 6% of GDP in FY25 and around 5% in the medium term, down from nearly 7% in FY24. A primary surplus exceeding 2% of GDP is anticipated in FY25.
IMF programme performance
Pakistan has shown progress in its IMF programme, meeting quantitative performance criteria, particularly in reserve accumulation and achieving a primary surplus. However, tax revenue growth has fallen short of targets. Provincial governments have legislated increases in agricultural income tax, a key structural benchmark.
External sector and reserves
The current account posted a surplus of $700 million in the first eight months of FY25, aided by surging remittances and favourable import prices. Gross foreign exchange reserves increased to just under $18 billion in March 2025, covering nearly three months of external payments.
Inflation and economic growth
Consumer price inflation is expected to average 5% year-on-year in FY25, down from over 20% in FY23-FY24, before rising to 8% in FY26. GDP growth is projected to edge up to 3% in FY25.
Debt trajectory and interest payments
Government debt-to-GDP ratio declined to 67% in FY24 from 75% in FY23 and is forecasted to gradually decrease over the medium term. However, the interest payment-to-revenue ratio remains high at 59% in FY25, significantly above the ‘B’ median of about 13%.
Political and implementation risks
Political volatility and challenges in implementing reforms pose risks to the economic outlook. The current consensus on the need for reform could weaken over time, and technical challenges remain significant.