Fitch said in a memorandum on Thursday that Pakistan has made great progress in restoring economic stability and enhancing external reserves.
The agency confirmed that the progress of structural reforms will be very important for the upcoming International Monetary Fund program reviews and securing continuous financial support from multilateral lenders.
Fitch pointed out that the decision of the State Bank in Pakistan (SBP) to reduce the policy rate to 12 % on January 27, stressed the latest progress in inflation. Consumer price inflation decreased to a little more than 2 % on an annual basis in January 2025, with a decrease in average of approximately 24 % in the fiscal year ending in June 2024 (fiscal year 24).
He wrote that rapid inflation reflects the effects of the fading base of previous support reforms and the stability of the exchange rate, with the support of a narrow cash position undergoing local demand and external financing needs.
Fitch added that economic activity is now benefiting from stability and low interest rates, after he absorbed a more comparative policy settings.
It expects a real growth value of 3.0 % in the 25th fiscal year, noting that private sector credit growth has become positive in terms of real conditions in October 2024 for the first time since June 2022.
Strong transfers, powerful agricultural exports, and narrow policy measures helped the current account of Pakistan to spread a surplus of about $ 1.2 billion (more than 0.5 % of GDP) in the six months to December 2024, leading to the opposite of the similar deficit in FY24.
Fitch said that foreign exchange market reforms in 2023 facilitated this transformation. I expected a slight expansion of the current account deficit in the 25th year when it promoted the Pakistan classification to “CCC+” in July 2024.
Foreign currency reserves are to exceed the goals under the facilities of the $ 7 billion in Pakistani International Monetary Fund Fund (EF) and previous Fitch expectations. The total official reserves amounted to more than $ 18.3 billion by the end of 2014, or about three months of external payments, an increase of about $ 15.5 billion in June.
However, the reserves remain low for financing needs, with more than $ 22 billion of external debt in the fiscal year 25.
This includes approximately $ 13 billion in bilateral deposits, which Fitch believes will be offered, noting obligations towards the International Monetary Fund. The Kingdom of Saudi Arabia rolled more than $ 3 billion in December, while the United Arab Emirates spanned two billion dollars in January.
Fitch wrote that the new bilateral capital flows are expected to be increasingly commercial and related to reforms.
He referred to discussions on the partial sale of a government share in a copper mine to a Saudi investor as an example. Pakistan and the Kingdom of Saudi Arabia recently agreed to the postponed oil pushing facility.
Despite the great benefits and current lenders, adequate external financing is still a challenge. The authorities made a budget with a budget of about $ 6 billion of multilateral financing, including the International Monetary Fund, in the 25th year, but Fitch indicated that about $ 4 billion of this would actually re -financing the current debt.
A recently announced working framework for $ 20 billion is compatible with the World Bank Group on a large scale with expectations, as the group’s current project portfolio reached $ 17 billion and the annual new net lending of $ 1 billion over the past five years.
Fitch admitted to progress in financial reform despite some setbacks. The main financial surplus outperformed the goals of the International Monetary Fund, although the growth of federal tax revenues in the first half of FY25 is less than the extension performance of the International Monetary Fund.
He also pointed out that although all provinces made higher agricultural revenue legislation – an EFF’s main structural condition – the deadline for implementation was missed in January 2025 due to the delay.
In July, Fitch said that a positive classification procedure can follow the continuous backup recovery, increase the reduction of external financing risks, and financial unification in line with the obligations of the International Monetary Fund.
However, it has warned that the deterioration of external liquidity, such as delay in the reviews of the International Monetary Fund, may lead to a negative action.
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