KARACHI – Pakistan’s economic story continues to balance on fine line between recovery and risk, and now Fitch Ratings kept the South Asian nation’s credit rating unchanged at B- with a stable outlook, pointing to steady progress under an ongoing reform path backed by global lenders.
The decision shows fragile but functioning stability, where improved fiscal discipline and rebuilt foreign reserves are helping Pakistan stay afloat, even as deep vulnerabilities remain beneath the surface.
The international agency signaled cautious optimism, noting that Islamabad’s emerging role as a ceasefire broker in Middle East tensions could bring tangible economic and diplomatic gains, potentially softening external pressures. At the same time, the country’s recent progress in stabilizing its economy and tightening fiscal discipline, largely under the watch of the International Monetary Fund, helped restore some confidence and secure funding channels.
Pakistan’s economic trajectory remains tightly tied to the IMF. A March 2026 staff-level agreement on key programme reviews could unlock $1.2 billion, pending approval. Fitch stressed that this programme is not just financial support—it is the core policy anchor keeping fiscal reforms on track and unlocking additional global funding.
Despite improved foreign exchange reserves, Fitch warned that Pakistan is extremely vulnerable to global energy shocks. The country imports nearly 90% of its oil from Gulf nations, leaving it exposed to supply disruptions, especially through the strategically vital Strait of Hormuz. Any escalation could quickly drain reserves and destabilize the economy.
Fitch said the stern measures will contain the fiscal deficit, as higher costs are offset by cuts elsewhere.
After a period of relief, inflation is expected to edge up to 7.9% in FY26—higher than last year, but far below the alarming 23.4% peak in FY24. Meanwhile, the State Bank’s aggressive rate cuts—bringing the policy rate down to 10.5% by end-2025—have supported borrowing and investment, although market rates are creeping up again amid fresh inflation fears.
Pakistan’s economy is projected to grow by 3.1% in FY26, only slightly higher than FY25. The modest improvement reflects better business confidence and cheaper borrowing, even as energy constraints weigh on momentum.
The government is also planning to tap global markets through a panda bond issuance. Fitch forecasts primary surplus will shrink to 2.1% of GDP in FY26, falling short of official targets. Pressures include rising non-interest spending and persistent challenges in boosting tax revenues, especially at the provincial level. The surplus could narrow further in FY27 as one-off central bank dividends fade.
After a rare surplus, Pakistan’s current account is expected to slip back into a 1.1% deficit in FY26, while foreign exchange reserves may decline slightly, adding to external vulnerabilities.
