Fitch Raises Pakistan’s Sovereign Rating to CCC Following IMF Agreement
In a positive development for Pakistan, the Fitch credit rating agency upgraded the country’s long-term foreign currency issuer default rating to CCC from CCC- on Monday. This upgrade comes as a welcome sign for a nation currently facing its worst economic crisis.
In a statement, Fitch noted that the country’s improved external liquidity and funding conditions, attributed to a staff-level agreement with the International Monetary Fund (IMF), had led to the upgrade. However, Fitch cautioned that the fiscal deficit continues to remain substantial.
According to the latest projections, there is an anticipated increase in the consolidated general government (GG) fiscal deficit, reaching 7.6% of GDP by FY24.
Pakistan’s budget for FY24 has estimated the fiscal deficit at 6.5 percent of GDP. Pakistan revised the budget ahead of the IMF deal where the finance minister said the new measures will improve the deficit, but didn’t give a figure.
Finance Minister Ishaq Dar welcomed the upgrade.
“Another positive news towards current economic revival journey, God be praised,” he said in a statement.
Islamabad signed the short-term IMF deal on 30 June under a standby arrangement that will disburse $3 billion over a nine-month period, subject to approval by the IMF’s board, which is meeting on 12 July.
The rating agency said it would expect Pakistan to see a modest recovery for the rest of the FY24 on “new external financing flows”, although the fresh financing will also lead to a widening of the current account deficit.
With sky-high inflation and foreign exchange reserves barely enough for a month of controlled imports, analysts say Pakistan’s economic crisis could have spiralled into a debt default in the absence of the IMF bailout.
The IMF deal will also unlock other external financing.
The authorities expect $25 billion in gross new external financing in FY24, against $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion to multilateral creditors, the agency said.
It also warned the IMF programme implementation and external funding could run risks due to a “volatile” political climate and large external financing requirements.
The nation of 220 million has seen acute political uncertainty since former Prime Minister Imran Khan was ousted in a parliamentary vote of confidence in April 2022.
The IMF’s team last week met all mainstream political parties to seek support and consensus for the programme in the lead-up to national elections due in October.
Khan’s party said he gave his support for the deal.
(Reuters)
