Pakistan Sees Fitch Upgrade to CCC+ with New IMF Program
KARACHI: Fitch Ratings has elevated Pakistan’s Long-Term Issuer Default Rating to ‘CCC+’, marking an improvement from the previous rating of ‘CCC’. This upgrade reflects increased confidence in the sustained availability of external funding, bolstered by the recent $7.0 billion IMF program agreement signed on July 12, 2024. This marks Fitch’s second upgrade for Pakistan within the past year, following the previous elevation in July 2023.
Fitch forecasts Pakistan’s Current Account Deficit to reach $4.0 billion (1.0% of GDP) in FY25, a significant increase from $700 million in FY24. For FY25, Pakistan is required to make external debt repayments totaling $22 billion, with $13 billion regularly rolled over. The Pakistani government has secured $24 billion in gross external financing, primarily from bilateral and multilateral sources, including Panda bond issuance. Notably, this amount excludes potential renewals of the oil facility from Saudi Arabia, Euro/Sukuk bond issuance, FDI, non-resident inflows, and climate finance, which could provide additional funding.
Muhammad Sohail, CEO of Topline Securities, anticipates that the government will seek climate finance from the IMF during the initial review of the new IMF program and expects the likelihood of renewing the oil facility to be high, based on historical precedents. He also suggests that Sukuk/Euro bond issuance may materialize after January 2025.
Fitch projects Pakistan’s reserves to rise to $22 billion by FY26, up from the current $15 billion, including gold holdings. The rating agency also expects a fiscal balance of 0.8% of GDP, lower than the IMF’s forecast of 2.0%, with an improvement to 1.3% by FY26. The headline deficit is projected to be approximately 6.9% of GDP in FY25, compared to the IMF’s estimate of 5.9%.
Rating improvements may occur with sustained increases in foreign currency reserves, reduced external risks, and effective implementation of fiscal consolidation plans aligned with the IMF program, enhancing confidence in reducing government debt. Conversely, rating downgrades could result from deteriorations in external liquidity, delays in the IMF program, or potential indications of debt restructuring.
