Fitch Ratings has reaffirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating at ‘B-’ with a Stable Outlook, citing continued macroeconomic stabilisation efforts, progress under the IMF programme, and improving external buffers.
In its latest assessment, the global rating agency noted that Pakistan has made steady fiscal consolidation progressaligned with reforms under the International Monetary Fund programme, which continues to serve as a key anchor for policy stability and external financing support.
Fitch expects Pakistan’s economic growth to slightly improve to 3.1% in fiscal year 2026, compared to 3% in FY2025, while inflation is projected to average 7.9%, higher than the previous year but significantly lower than the 23.4% recorded in FY2024.
External Risks and Energy Exposure Highlighted
The agency warned that Pakistan remains highly exposed to global energy shocks, noting that around 90% of its oil imports originate from the Gulf region, leaving the economy vulnerable to disruptions linked to tensions in the Middle East and supply constraints through the Strait of Hormuz.
However, Fitch added that rebuilt foreign exchange buffers and continued policy discipline provide some protection against external shocks.
IMF Programme and Financing Outlook
Fitch said Pakistan has reached a staff-level agreement for the third review of its Extended Credit Facility and second review of the Resilience and Sustainability Facility, which could unlock approximately USD 1.2 billionpending approval.
The report emphasized that continued IMF engagement will help mobilize additional multilateral and bilateral financing, supporting external stability.
Monetary Policy and Inflation Trends
According to the report, the State Bank of Pakistan has sharply eased monetary policy, cutting the policy rate to 10.5% from 22% in 2024. However, Fitch noted that rising energy prices and supply constraints could add upward pressure on inflation in the coming months.
Fiscal Position and Debt Outlook
Fitch projects Pakistan’s primary surplus to narrow to 2.1% of GDP in FY2026, slightly below official targets, due to rising current expenditures and limited tax expansion capacity.
General government debt is expected to decline modestly to 68.9% of GDP, down from 70.7% in FY2025, but still significantly above the median for similarly rated sovereigns.
Interest payments remain a major concern, with Pakistan’s interest-to-revenue ratio projected at 46.5%, far exceeding peer averages.
Fitch expects the current account to shift back into a deficit of 1.1% of GDP in FY2026, after a temporary surplus in FY2025. Foreign exchange reserves are projected to ease to around USD 21.3 billion by end-FY2026, covering roughly 2.9 months of external payments.
The agency also noted continued reliance on external financing, including IMF disbursements, bilateral rollovers, and planned issuance of a panda bond.
Key Risks and Outlook
Fitch identified several risks to Pakistan’s outlook, including:
- Rising global oil prices
- Weakening remittance inflows
- Delays in fiscal reform implementation
- External financing pressures and reserve depletion
It also flagged heightened geopolitical tensions in the region and renewed friction with Afghanistan, though it expects limited immediate economic disruption under its baseline scenario.
Fitch said Pakistan could face a downgrade if external liquidity deteriorates or fiscal consolidation stalls, leading to rising debt and weaker debt-servicing capacity.
Conversely, an upgrade could be considered if Pakistan achieves sustained improvement in external financing access and a durable recovery in foreign exchange reserves beyond current projections.
