ISLAMABAD: Fitch Ratings has expressed cautious optimism about Pakistan’s economic recovery in the fiscal year 2025, emphasizing that the country’s success in continuing structural reforms will be crucial in shaping its credit outlook.
Fitch highlighted that Pakistan’s efforts to restore economic stability and strengthen its external financial reserves have been supported by key policy decisions, such as the State Bank of Pakistan’s recent reduction of policy rates to 12% in January 2025. This policy shift reflects a significant improvement in inflation management, with consumer price inflation dropping to 2% year-on-year in January 2025, down from 24% in FY24. These efforts have led to reduced domestic demand and lower external financing needs, providing much-needed relief.
With 3.0% real GDP growth expected for FY25, Pakistan is benefiting from tighter policy settings, improved private sector credit growth, and a positive shift in its current account balance. A surplus of approximately USD 1.2 billion was recorded in the six months leading to December 2024, boosted by strong remittances, robust agricultural exports, and foreign exchange reforms.
Despite these positive developments, Fitch noted that Pakistan still faces significant external financing challenges, with over $22 billion in external debt maturing in FY25. While Pakistan’s bilateral partners, including Saudi Arabia and the UAE, are expected to honor rollover commitments, securing sufficient external financing remains a concern.
The credit outlook remains dependent on the country’s ability to meet IMF targets, including fiscal reforms and tax revenue growth. Delays in implementing these reforms could hinder progress. Fitch added that a sustained recovery in foreign reserves and a reduction in external liquidity risks could lead to positive rating actions.
