Fitch Ratings, a global credit rating agency, has affirmed Pakistan’s ‘CCC’ rating, reflecting some near-term certainty over external liquidity and funding provided by its nine-month Stand-by-Arrangement (SBA) with the IMF. The SBA, which was approved in April 2023, has anchored fiscal and economic policies, laying the groundwork for a more ambitious longer-term programme.
However, Pakistan’s external funding requirements are set to remain high and its reserves low, leaving it dependent on the IMF and bilateral and multilateral support, which could be jeopardised by policy mistakes and political volatility, as in the past.
The State Bank of Pakistan’s (SBP) reserves have improved, but remain low, and projected external funding needs will continue to exceed reserves for at least the next few years, while broader measures of net reserves are deeply negative.
Pakistan’s exchange rate appears more stable and more market-driven after depreciating in the past two years. The SBP has refrained from overt intervention to support the rupee, and the gap between the interbank and kerb market rates has narrowed. Nevertheless, ad hoc capital controls by banks indicate that some supply-demand imbalances persist at current exchange rates and point to a preference for exchange-rate stability among commercial banks and the SBP.
Fitch Ratings also noted that most of Pakistan’s IMF programmes have ended prematurely, with exchange rate management, revenue mobilisation, and energy sector and state-owned enterprise reform posing recurring challenges.
