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Fitch Ratings Upgraded Pakistan’s Credit Rating to ‘CCC+’.
(VOR News) – Pakistan’s Fitch Ratings Long-Term Foreign-Currency Issuer Default Rating (IDR) has been upgraded from ‘CCC’ to ‘CCC+’, according to an announcement made by Fitch Ratings.
A recent deal with the International Monetary Fund (IMF) is the primary factor that has led to this development, which indicates that Pakistan’s external liquidity and financial conditions have improved from their previous state.
Pakistan demonstrated impressive performance under a previous International Monetary Fund (IMF) program, which led to the current 37-month Extended Fund Facility (EFF) arrangement worth $7 billion.
The nation was successful in reducing its budget deficits and re-establishing its foreign exchange reserves, which contributed to the establishment of a more stable economic environment.
Pakistan’s staff-level agreement with the International Monetary Fund (IMF) is largely responsible for the rating upgrade.
Fitch Ratings has a high rating because external support is a given.
Pakistan plans to solve the ongoing structural difficulties that have been plaguing its tax system, energy sector, and state-owned firms through the implementation of the new program.
The government has committed to preserving the flexibility of the exchange rate and improving the framework through which monetary policy is implemented.
Depending on Pakistan collecting further finance commitments from bilateral partners such as Saudi Arabia, the United Arab Emirates, and China, Fitch Ratings anticipates that the International Monetary Fund board will approve the program by the end of August. These pledges are expected to total to around $4-5 billion over the course of the EFF’s tenure.
Pakistan has shown fiscal discipline during the course of the past year by increasing taxes, decreasing spending, and increasing the costs of goods and services such as petrol, electricity.
The government has also made considerable initiatives to close the difference between exchange rates on the parallel market and those on the interbank market.
A crackdown on the black market is included in Fitch Ratings actions.
In the fiscal year 25 (FY25), Fitch Ratings forecasts that Pakistan’s current account deficit (CAD) would be contained at roughly $4 billion, which is equivalent to approximately 1% of GDP. This comes after a significant drop to approximately $700 million in the fiscal year 24. The tightening of financing conditions and the general decrease in domestic demand are to blame for this.
As a result of the State Bank of Pakistan (SBP) rebuilding its foreign exchange reserves in the midst of new finance inflows and limited Canadian dollars, Pakistan’s foreign exchange reserves have showed significant signs of recovery.
By June 2024, official gross reserves, which include gold, had climbed to more than $15 billion. It is anticipated that these reserves will increase to about $22 billion by the end of the fiscal year, which will bring them closer to their peak in 2021.
In the fiscal year 25 (FY25), Fitch Ratings anticipates a primary surplus of 0.8% of GDP and an overall fiscal deficit of 6.9% of GDP. By fiscal year 26 (FY26), the deficit is expected to decrease to 1.3% and 6.9% of GDP, respectively. Developed in conjunction with officials from the International Monetary Fund, these projections are based on the partial implementation of the revenue initiatives that are stated in the budget for the fiscal year 25.
Here’s what Fitch Ratings thinks about Pakistan’s upheaval.
Fitch Ratings highlighted potential weaknesses due to Pakistan’s large finance needs and the demand for onerous reforms, despite the fact that these economic indicators are encouraging. The agency issued a warning that the failure to execute these measures might put the performance of the program as well as the stability of the funding at risk.
Fitch Ratings voiced concerns about the political environment in the wake of the close results of the elections that took place in February. These elections resulted in a mandate for Prime Minister Shehbaz Sharif’s PMLN party that was weaker than anything that was anticipated.
Following a verdict by the Supreme Court that re-allocated reserved seats in favour of independents linked with the PTI party, which is the party of former Prime Minister Imran Khan, the Pakistan Muslim League-Nawaz (PMLN) and its allies hold only a slender majority in the National Assembly.
SOURCE: MMN
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