Fitch Ratings has affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CCC,’ stating that it does not typically assign outlooks to sovereigns with a rating of ‘CCC+’ or below.
The rating company expects Pakistani authorities to complete the ongoing standby program with the International Monetary Fund (IMF), a crucial deal that prevented the country from defaulting on its sovereign debt.
However, there were expectations for an improvement in Pakistan’s rating due to the reforms undertaken by the caretaker government to meet IMF requirements. A former adviser of the finance ministry expressed surprise at the unchanged rating, attributing it to uncertainties on the external front, holding elections, and potential fiscal slippages.
Fitch’s ‘CCC’ rating reflects high external funding risks amid significant medium-term financing requirements. The company acknowledges Pakistan’s strong performance on its current IMF arrangement but warns of risks related to delays and uncertainty around negotiations for a follow-up IMF program after the current agreement concludes in March 2024.
Fitch anticipates elections to take place as scheduled in February, but there is concern that political volatility could emerge, endangering recent reforms. The rating company also highlights Pakistan’s history of failing to implement or reverse reforms agreed with the IMF across the political spectrum.
While Fitch expects the IMF loan approval process to be unproblematic, it emphasizes the need for Pakistan to stay on the IMF path and prepare for a new program. Structural reforms in areas like energy deregulation, investment, and domestic revenue mobilization are deemed necessary for sustainable growth.
