Fitch Ratings, the US-based rating agency, announced on Monday that it has upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) from ‘CCC-‘ to ‘CCC’. The upgrade reflects reduced external financing risks, as Pakistan has experienced improved external liquidity and funding conditions following a recent staff-level agreement with the International Monetary Fund (IMF) on a nine-month Stand-by Arrangement (SBA) in June.
The agency expects the SBA to be approved by the IMF board in July, which will not only catalyze additional funding but also serve as a foundation for policies aligned with the upcoming parliamentary elections scheduled for October. However, Fitch also highlighted potential risks to the implementation of the program and external funding due to a volatile political climate and Pakistan’s significant external financing requirements.
Fitch noted that the Pakistani government has taken necessary measures to address various issues that had delayed the quarterly reviews of the previous $6.5 billion Extended Fund Facility (EFF), which expired on June 30. These measures include steps to address shortfalls in government revenue collection, energy subsidies, and policies inconsistent with a market-determined exchange rate, such as import financing restrictions.