Fitch Ratings has emphasized that Pakistan’s ability to advance structural reforms will be a critical factor in determining its credit outlook in the years ahead. As the country works to restore economic stability and strengthen its external financial reserves, the success of these reforms will be crucial for maintaining access to multilateral and bilateral financing, especially from the International Monetary Fund (IMF).
Recent economic progress in Pakistan has been supported by key policy measures, including the State Bank of Pakistan’s decision to reduce policy rates to 12% on January 27, 2025. This adjustment reflects significant improvements in inflation control, with consumer price inflation falling to just over 2% year-on-year in January 2025, down from nearly 24% in FY24.
Fitch noted that this disinflation trend, combined with exchange rate stability and a tight monetary policy approach, has eased domestic demand and reduced external financing pressures, providing much-needed relief to the country’s financial situation.
Positive growth amid structural adjustments
Pakistan’s economic outlook for FY25 is promising, with Fitch predicting a 3.0% real GDP growth. The country has adapted to stricter economic policies, benefiting from lower interest rates and positive private sector credit growth.
A significant improvement in the current account has also been seen, with a $1.2 billion surplus recorded between June and December 2024, attributed to robust remittances, agricultural exports, and foreign exchange reforms. However, despite increased reserves, Pakistan still faces substantial external financing pressures, with over $22 billion in public external debt maturing in FY25.
Fitch predicts that Pakistan’s credit rating could improve if the country achieves a steady recovery in foreign reserves, reduces external financing risks, and implements fiscal reforms as agreed upon with the IMF. However, delays in IMF reviews or deteriorating external liquidity could lead to a negative credit rating ¹.
Pakistan has made significant progress in addressing its economic challenges, but its future success hinges on implementing structural reforms, stabilizing external financing, and managing large public debt payments in the upcoming fiscal year. The ongoing reform agenda is crucial for maintaining a stable credit outlook.
To secure a positive credit rating, Pakistan should focus on:
– Sustained Recovery in Foreign Reserves: Maintaining a steady increase in foreign reserves to alleviate external financing pressures.
– Fiscal Consolidation: Implementing fiscal reforms as agreed upon with the IMF to reduce the budget deficit and promote economic stability.
– Structural Reforms: Continuing to implement structural reforms to improve the business environment, enhance competitiveness, and promote sustainable economic growth.
By achieving these goals, Pakistan can ensure a stable credit outlook and attract foreign investment to drive economic growth.
