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ISLAMABAD: Fitch Ratings, one of the world\u2019s top three agencies, on Monday affirmed Pakistan\u2019s long-term foreign currency issuer default rating (IDR) at \u2018B-\u2019 with a \u201cstable outlook\u201d.<\/p>\n
\u201cPakistan\u2019s rating affirmation reflects progress on fiscal consolidation and macro stability measures, broadly in line with its International Monetary Fund (IMF) programme and supporting its funding capacity,\u201d the US-based rating agency said<\/a>.<\/p>\n \u201cForeign exchange buffers rebuilt over the past year provide a cushion against the economic impact of the war in the Middle East, while Pakistan\u2019s role as a ceasefire broker may provide tangible benefits and partly offset external pressures,\u201d it said.<\/p>\n However, it highlighted that the country\u2019s high exposure to the global energy price shock remained a key risk, particularly if it led to a sharp drop in foreign exchange reserves.<\/p>\n Talking about key rating drivers, Fitch said the authorities reached a staff-level agreement <\/a>with the IMF on its loan programmes in March, unlocking a combined $1.2 billion.<\/p>\n \u201cThe programme will continue to provide a key policy anchor, particularly for the fiscal framework, and will help mobilise additional multilateral and bilateral support,\u201d it said.<\/p>\n However, it pointed out that Pakistan\u2019s vulnerability to energy shocks.<\/p>\n \u201cPakistan sources up to 90 per cent of oil from the Gulf and has limited storage capacity, creating high exposure to the Middle East conflict and constricted energy supply via the Strait of Hormuz,\u201d it said, adding the fuel subsidies since early March had been funded by reallocating expenditure from other areas of the budget, while costs had been reduced by large pump-price hikes and the switch to a more targeted support scheme from April.<\/p>\n \u201cWe expect the overall impact on the fiscal deficit to be contained, as the government is likely to cut other spending,\u201d the rating agency said.<\/p>\n On the inflation side, the rating agency said higher global energy prices would raise inflation in the coming months, especially with the switch to more targeted subsidy support and base effects.<\/p>\n \u201cWe expect inflation to average 7.9pc in FY26 (ending June 30), above the FY25 level but well below the 23.4pc in FY24,\u201d it said.<\/p>\n The State Bank of Pakistan (SBP) had cut the policy rate to 10.5pc<\/a> by the end of 2025, from 22pc at the end of May 2024, and market interest rates fell in tandem. However, the term interbank rate had risen to about 100bp above the policy rate by early April, on inflation concerns tied to the tight energy supply.<\/p>\n \u201cThe shock will detract from gross domestic product (GDP) growth, but we still expect growth of 3.1pc in FY26, up slightly from 3pc in FY25, due to improved confidence from lower borrowing costs,\u201d it said.<\/p>\n It anticipated external debt amortisations to rise to $12.8bn (2.9pc of GDP) in FY26, from almost $8bn in FY25. A $3.5 billion deposit <\/a>was repaid to the United Arab Emirates (UAE) in April, the agency said, even though repayments have yet to take place. It said the amortisation projections exclude another $9.2bn in bilateral deposits and loans expected to be rolled over.<\/p>\n \u201cWe expect debt to be financed mainly by IMF and other multilateral and bilateral inflows, followed by commercial financing. Pakistan plans to issue a panda bond this fiscal year,\u201d it said.<\/p>\n Fitch expected the primary surplus to narrow to 2.1pc of GDP in FY26, 0.3ppc below the official target.<\/p>\n \u201cThis will follow a rise in non-interest current expenditures and limits to sustained gains in tax revenue\/GDP, due to capacity constraints and difficulties executing federal tax reforms at the provincial level,\u201d it said.<\/p>\n \u201cWe expect the primary surplus to shrink further in FY27 as extraordinarily high SBP dividends are unlikely to continue in our view, while lower interest payments as a share of GDP will help keep fiscal deficits stable at about 5.3pc of GDP,\u201d it said.<\/p>\n \u201cA primary surplus and lower domestic borrowing costs should lower general government debt\/GDP to 68.9pc in FY26 from 70.7pc in FY25, still well above the \u2018B\u2019 median of 51.3pc of GDP in 2026. The ratio is expected to decline only gradually over the medium term as the primary surplus narrows. Pakistan\u2019s general government interest\/revenue ratio should remain very high at 46.5pc,\u201d the rating agency said.<\/p>\n The current account was expected to return to a small deficit of 1.1pc in FY26 from a rare surplus of 0.5pc in FY25.<\/p>\n \u201cPakistan\u2019s foreign exchange policy continues to exhibit rigidities despite a push towards currency liberalisation in 2023, and the rupee has appreciated by 30pc in real effective terms from its early 2023 trough, likely contributing to large merchandise trade deficits,\u201d the agency said, adding that hydrocarbons typically comprised between a quarter and a third of goods imports.<\/p>\n It also noted that large and sustained net foreign exchange purchases by the SBP on the interbank market and a gold price rally led to foreign reserves of just under $28.4bn in February 2026, while non-gold reserves rose by about $5.1bn year-on-year to $17.5bn.<\/p>\n <\/div>\n<\/figure>\n <\/div>\n<\/figure>\n