Fitch Ratings raised Pakistan’s long-term foreign-currency issuer default rating (IDR) from “CCC-” to “CCC” days after the country reached an agreement with the International Monetary Fund (IMF), citing improvement in the nation’s external finance.
Why Fitch Upgrade Pakistan’s Rating
The improvement, according to the international rating agency, is a result of Pakistan’s better external liquidity and funding circumstances as a result of the IMF and staff-level agreement (SLA) on a nine-month stand-by arrangement (SBA) for a $3 billion loan.
“We expect the SLA to be approved by the IMF board in July, catalyzing other funding and anchoring policies around parliamentary elections due by October,” it said in a statement
A turbulent political environment and a significant need for external finance, according to the rating agency, continue to pose risks to the IMF program’s implementation and external funding.
Fitch Ratings also called attention to steps Pakistan has done to resolve issues with inadequate tax collection, energy subsidies, and laws that conflict with a freely floating currency rate, such as import financing limitations.
“These issues held up the last three reviews of Pakistan’s previous IMF program, before its expiry in June.”
Following new tax reforms and subsidy reforms in February, the government most recently modified its planned budget for the fiscal year ending June 2024 (FY24) to include new revenue initiatives and reduce spending.
Although rules on giving imports priority had only been eliminated in June, it said that the authorities appeared to stop managing currency rates in January 2023.
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