Fitch Ratings has upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘CCC+’, maintaining a Stable outlook. 

The upgrade reflects Fitch’s increased confidence in Pakistan’s ability to sustain recent progress in reducing budget deficits and implementing structural reforms, bolstering its performance under the International Monetary Fund (IMF) program and ensuring continued funding availability.

Fitch expects continued tight economic policies to support the recovery of international reserves and manage external funding needs, acknowledging that implementation risks remain and funding needs are substantial. While acknowledging potential external pressures from global trade tensions and market volatility, Fitch noted that lower oil prices and Pakistan’s low reliance on exports and market financing mitigate these risks.

The rating agency highlighted Pakistan’s strong performance on quantitative performance criteria within the IMF program, particularly in reserve accumulation and primary surplus, although tax revenue growth fell short of targets. 

Fitch forecasted a narrowing general government budget deficit to 6 percent of GDP in FY25 and around 5 percent in the medium term, compared to nearly 7 percent in FY24. This forecast incorporates a more than doubling of the primary surplus to over 2 percent of GDP in FY25, offsetting shortfalls in tax revenue with lower spending and wider provincial surpluses.

Fitch projects a gradual decline in Pakistan’s government debt-to-GDP ratio over the medium term due to tight fiscal policy, nominal growth, and lower domestic debt repricing. Fitch has forecasted CPI inflation to average 5 percent year-on-year in FY25, down from over 20 percent in FY23-FY24, before rising to 8 percent in FY26.  GDP growth is projected to reach 3 percent in FY25.