Fitch Ratings has officially affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating at B- while maintaining a stable outlook. This assessment comes as a result of the country’s notable progress in fiscal consolidation and macroeconomic stabilization, largely driven by the ongoing International Monetary Fund program. The rating agency pointed to improvements in fiscal management and external financing conditions as primary drivers for the affirmation. Furthermore, the rebuilding of foreign exchange reserves over the previous year has offered a necessary cushion against external shocks, including the economic volatility stemming from ongoing conflicts in the Middle East. However, the agency noted that Pakistan remains significantly exposed to energy-related risks due to its substantial reliance on imported fuel.
A major highlight in the report is the recent staff-level agreement between Pakistan and the IMF regarding the third review of the Extended Credit Facility and the second review of the Resilience and Sustainability Facility. If approved by the IMF board, this could unlock approximately $1.2 billion in funding, which would serve to reinforce domestic policy discipline and encourage further bilateral and multilateral financial support. Despite this positive momentum, the agency warned that Pakistan’s energy security remains fragile. The country currently imports roughly 90% of its oil from Gulf nations and possesses limited storage capacity, leaving it vulnerable to supply disruptions and global price fluctuations.
Fitch forecasts that rising global energy prices will likely push average inflation to 7.9% in the 2026 fiscal year. While this is an increase from the previous year, it remains significantly lower than the peak of 23.4% recorded in 2024. Although the government has restructured fuel subsidies, higher energy costs and tighter financial conditions may act as a drag on overall economic expansion. Nevertheless, the agency anticipates that GDP growth will edge up to 3.1% in FY26, compared to 3.0% in FY25. This modest recovery is expected to be supported by improving investor confidence and a gradual reduction in borrowing costs as the economy stabilizes.
The current account is expected to shift back into a deficit of around 1.1% of GDP in the 2026 fiscal year, following a surplus of 0.5% in 2025. This reversal is largely attributed to higher import costs driven by energy prices and recovering domestic demand. Fitch also observed that the rupee has appreciated significantly in real terms since early 2023, a factor that could potentially weigh on exports and widen the trade deficit. Hydrocarbons continue to be a dominant factor in the trade balance, accounting for one-quarter to one-third of the country’s total goods imports.
External debt obligations remain a significant challenge, with repayments expected to rise to $12.8 billion in FY26. To meet these requirements, Fitch expects the country to rely heavily on a mix of multilateral, bilateral, and commercial financing. This includes plans to issue a panda bond during the current fiscal year to diversify funding sources. While foreign exchange reserves are projected to cover roughly 2.9 months of external payments, the agency noted that net reserves remain negative when accounting for deposits and swap arrangements. Additionally, the report highlighted that while government debt is projected to decline gradually to 68.9% of GDP, governance indicators such as political stability and corruption continue to weigh on the nation’s overall credit profile.
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