Pakistan continues to make headway in restoring economic stability: Fitch

Global credit rating agency Fitch on Friday acknowledged Pakistan’s progress when it came to making headway regarding economic stability.

In a note, the agency said, “Pakistan has continued to make headway restoring economic stability and rebuilding external buffers.”

Last year, the agency had upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from CCC on the back of the country’s deal with the International Monetary Fund (IMF).

According to Fitch, a CCC rating is a speculative or junk grade indicating the issuer has a high risk of defaulting on its debt obligations.

The agency acknowledged that the country’s economic progress on structural reforms “will be key to upcoming IMF programme reviews and continued financing from other multilateral and bilateral lenders”.

Additionally, the agency highlighted the disinflation trend in the country, noting that the central bank’s monetary policy stance helped the downward trajectory in inflationary pressure, which eased to 2.4 per cent in January.

The annual inflation maintained a decelerating trend, hitting a nine-year low at 2.4pc year-on-year in January, mainly due to a decline in prices of perishable food products.

The current situation in Pakistan reflects disinflation, which signifies a slowdown in inflation. In contrast, deflation occurs when the general price levels decline.

“Rapid disinflation reflects fading base effects from earlier subsidy reforms and exchange rate stability, underpinned by a tight monetary policy stance, which in turn has subdued domestic demand and external financing needs,” Fitch stated.

Regarding economic activity, Fitch highlighted that the activity was now benefitting from stability and falling interest rates, having been subjected to a tight monetary policy settings previously.

“We expect real value added to expand by 3.0 per cent in FY25,” it underlined, adding that “growth in credit to the private sector turned positive in real terms in October 2024 for the first time since June 2022”.

On positive developments, it highlighted the country’s strong remittance inflows, robust agricultural exports and tight policy settings allowed the current account (CA) to move into a surplus of about $1.2 billion — over 0.5pc of GDP.

“Foreign exchange market reforms in 2023 also facilitated the shift,” it highlighted, adding that when the agency upgraded the country’s rating CCC+, they had expected a “slight widening of the current-account deficit in FY25”.

Furthermore, it estimated that foreign exchange reserves were set to outperform targets under the IMF $7bn Extended Fund Facility and the agency’s previous forecasts.

“Gross official reserves reached over $18.3bn by end-2024, about three months of current external payments, up from around $15.5bn in June,” it added.