Fitch Ratings Keeps Pakistan at ‘B-’ as IMF Lifeline Holds Economy Together

Fitch Ratings has affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook.

Pakistan’s rating affirmation reflects progress in fiscal consolidation and macroeconomic stabilization measures, broadly aligned with its IMF program, which continues to support funding stability. Rebuilt foreign exchange (FX) buffers over the past year provide a cushion against external shocks, including rising global energy risks linked to geopolitical tensions in the Middle East.

Still, Pakistan remains exposed to high global energy price volatility, which could pressure FX reserves if shocks intensify.

Key Rating Drivers

• IMF Support Remains Central: Pakistan has reached a staff-level agreement on IMF program reviews, unlocking about $1.2 billion pending approval, reinforcing fiscal discipline and external financing support.
• Energy Shock Vulnerability: Heavy reliance on Gulf oil imports (up to 90%) and exposure to Strait of Hormuz disruptions leave Pakistan vulnerable. Recent fuel subsidy adjustments have been offset through budget reallocations and price increases.
• Inflation Pressures Rising: Fitch expects inflation to average 7.9% in FY26, up from FY25, driven by energy costs and subsidy restructuring, though far below FY24 levels.
• Growth Modest but Stable: GDP growth is projected at 3.1% in FY26, slightly higher than FY25 due to improved confidence and lower borrowing costs.
• Rising External Financing Needs: External debt repayments are expected to rise to $12.8 billion in FY26, including a $3.5 billion UAE deposit repayment. Financing will rely on IMF, multilateral, and bilateral inflows.
• Fiscal Deficit Remains Large: Primary surplus is expected to narrow to 2.1% of GDP, with overall fiscal deficits stabilizing around 5.3% of GDP.
• Debt Remains High: Debt-to-GDP is projected to decline slightly to 68.9% in FY26, but remains well above peers.
• Current Account Returns to Deficit: Pakistan is expected to post a 1.1% of GDP current account deficit in FY26, reversing last year’s surplus.
• Reserves Expected to Ease: FX reserves are projected to fall to $21.3 billion by end-FY26, covering about 2.9 months of external payments.
• Geopolitical Risks: Regional tensions, including Afghanistan border escalations, remain a downside risk to fiscal stability and growth.

Rating Outlook

• Downgrade Risks: External funding stress, rising oil prices, weaker remittances, or stalled fiscal reforms.
• Upgrade Potential: Stronger external financing access, sustained reserve buildup, and deeper fiscal consolidation.