Fitch Ratings: Pakistan’s Economy Shows Signs of Stability, Growth Expected to Reach 3%

Pakistan’s economy is showing signs of stability, with an international rating agency projecting a 3% growth in the current fiscal year 2024-25 (FY25). The country is making progress in rebuilding its external buffers, but its external financing needs will remain substantial in the coming year .

The agency’s positive outlook on Pakistan’s economic growth is a welcome development, indicating that the country’s efforts to restore stability are bearing fruit. However, the significant external financing needs pose a challenge, highlighting the need for continued prudent economic management.

In a commentary titled ’ Pakistan’s Progress on Structural Reform Remains Key to Credit Profile’ on Thursday, Fitch Ratings said rebuilding its foreign exchange reserves, Pakistan needs to repay over $22 billion in external debt in the fiscal year 2025, including nearly $13 billion in bilateral deposits.

“Securing sufficient external financing remains a challenge, considering large maturities and lenders’ existing exposures,” said the credit ratings agency.

To address its external financing needs from the International Monetary Fund (IMF) and other multilateral and bilateral lenders, Fitch said Pakistan needs to continue implementing structural reforms, including those related to fiscal consolidation and improving its business environment.

Pakistan is undergoing reforms under a $7 billion IMF programme, which is up for its first review later this month. The programme aims to help Pakistan address deep-rooted economic issues such as its large fiscal and current account deficits.

“Deteriorating external liquidity, for example linked to delays in IMF reviews, could lead to negative action,” the rating agency said.

Still, Fitch noted that Pakistan has made progress in rebuilding its foreign exchange reserves, outperforming targets set by the IMF.

Fitch also said that Pakistan’s economic activity is now benefiting from stability and falling interest rates, expecting “real value added to expand by 3.0% in FY25”.

Fitch was of the view that 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.
Strong remittance inflows, robust agricultural exports and tight policy settings have allowed Pakistan’s current account to move into a surplus of about $1.2 billion (over 0.5% of GDP) in the six months to December 2024, from a similarly sized deficit in FY24, it said.

Finance Minister Senator Muhammad Aurangzeb had expressed hopes for an upgrade in the country’s credit rating, currently at CCC+ by Fitch and Caa2 by Moody’s, both considered “junk” territory.

“Ideally, I would like to think that some action in this direction can take place before our fiscal year is over, which is this June,” Aurangzeb told Reuters last month.