ISLAMABAD – Fitch Ratings upgraded Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘CCC+’ to ‘B-’, making it Stable, in what is said to be a milestone for country’s economic recovery and its ongoing reform agenda.
According to Fitch, the upgrade reflects Pakistan’s recent strides in reducing its fiscal deficit, advancing structural reforms, and maintaining strong performance under its IMF-supported programs. These developments are contributing to improved funding availability and macroeconomic stability.
“Pakistan has demonstrated progress in restoring fiscal discipline and rebuilding policy credibility,” Fitch noted, pointing to the successful staff-level agreement reached with the IMF in March 2025. This agreement includes the ongoing $7 billion Extended Fund Facility and the newly approved $1.3 billion Resilience and Sustainability Facility, both set to run through the third quarter of 2027.
Despite some tax revenue shortfalls, Pakistan has performed well in meeting IMF performance benchmarks, especially in terms of foreign reserve accumulation and achieving a primary budget surplus. Key provincial reforms, such as new agricultural income taxes, have also been implemented — meeting one of the IMF’s structural conditions.
The agency forecasts the country’s budget deficit will fall to 6% of GDP in FY25, with a further drop to around 5% over the medium term, down from nearly 7% in FY24. The primary surplus is expected to more than double, exceeding 2% of GDP in the coming fiscal year.
Challenges remain, including large financing needs and vulnerability to global financial shocks. However, Fitch cited factors such as lower oil prices and Pakistan’s limited reliance on export markets as buffers against external risks.
One notable development is the State Bank of Pakistan’s dividend payout, equivalent to 2% of GDP, which has provided a welcome boost to federal finances in FY25. This dividend stems from the delayed effects of previously high domestic interest rates, which, while a drag on past fiscal performance, are now contributing positively.
The upgrade marks Pakistan’s best credit rating since 2018 and reflects growing optimism among investors and international institutions. With reforms on track and fiscal consolidation underway, the country appears to be turning a corner toward greater stability and resilience.
