Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating to ‘B-‘ from ‘CCC+’, citing stronger fiscal consolidation efforts and improving external stability.
This marks Pakistan’s first upgrade in nearly six years. The outlook has been revised to stable, last seen in 2018.
The rating agency pointed to increased confidence in Islamabad’s ability to narrow budget deficits and pursue structural reforms under its International Monetary Fund (IMF) programme. Fitch highlighted that while tight economic policies should help rebuild international reserves, financing needs remain significant.
The agency forecasts Pakistan’s budget deficit to shrink to 6% of GDP in the fiscal year ending June 2025, down from nearly 7% a year earlier. The primary surplus is expected to more than double to over 2% of GDP.
Government debt fell to 67% of GDP in FY24, from 75% a year earlier, and is projected to gradually decline in the medium term.
However, Fitch noted the debt ratio would edge up in FY25 due to a sharp drop in inflation before resuming its downward trajectory.
Consumer inflation is forecast to average 5% in FY25, from over 20% in the previous two years, on the back of fading base effects from energy price reforms.
External accounts showed improvement, with a current account surplus of $700 million in the first eight months of FY25, supported by strong remittances and lower import costs. Gross reserves rose to nearly $18 billion in March 2025, covering around three months of imports, compared to $8 billion in early 2023.
Despite the positive outlook, Pakistan faces $8 billion in external debt repayments in FY25 and $9 billion the following year, excluding routinely rolled bilateral loans.
The government secured $4 billion in external financing in the first half of FY25 and aims to raise $10 billion more by year-end. Fitch maintained concerns over Pakistan’s weak governance, assigning it the lowest ESG governance score, citing fragile institutional quality and the rule of law.