Fitch Ratings has upgraded Pakistan’s credit rating, citing reduced external funding risks following a new bailout from the International Monetary Fund (IMF). The rating agency raised Pakistan’s long-term foreign-currency issuer default rating (IDR) to CCC+ from CCC. Fitch typically does not assign outlooks to sovereigns with a rating of CCC+ or below. While still below investment grade, the upgrade suggests a lower likelihood of default, analysts said reacting to the development. However, the agency warned that renewed deterioration in external liquidity conditions, delaying IMF programme reviews, or indications that the authorities were considering debt restructuring could lead to downgrages in the future. “The upgrade reflects greater certainty over the continued availability of external funding, in the context of Pakistan’s SLA (staff-level agreement) with the IMF on a new 37-month USD7 billion EFF (extended fund facility),” Fitch said in a handout released on Monday. According to the rating agency, strong performance on the previous, more temporary IMF arrangement helped the country narrow fiscal deficits and rebuild foreign exchange (FX) reserves, and further improvements are likely. “Nevertheless, Pakistan’s large funding needs leave it vulnerable if it fails to implement challenging reforms, which could undermine programme performance and funding,” it warned. Fitch said Pakistan and the IMF reached the SLA on 12 July. Highlighting the fiscal struggles that lie ahead for Pakistan, the rating agency notes that before likely IMF board approval by end-August, the government will have to obtain new funding assurances from bilateral partners, chiefly Saudi Arabia, the UAE and China, totalling about $4 billion-5 billion throughout the EFF. “We believe this will be achievable, given the strong record of support and significant policy measures in the recent budget for the fiscal year ending June 2025 (FY25),” Fitch said. It said Pakistan completed its nine-month Stand-by Arrangement with the IMF in April, while over the past year, it raised taxes, cut spending and raised electricity, gas and petrol prices. The agency observed that the government also all but eliminated the gap between the interbank and parallel market exchange rates through a crackdown on the black market and regulation of exchange houses. Meanwhile, Prime Minister Shehbaz Sharif hailed the upgrade and appreciated the efforts of Finance Minister Muhammad Aurangzeb and his team over the improvement in credit rating.
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