In a recent announcement, Fitch Ratings Inc., the US-based credit rating agency, has opted to keep Pakistan's Long-Term Foreign-Currency Issuer Default Rating unchanged at 'CCC.'

Despite positive economic indicators such as local currency appreciation and an ongoing Stand-by Arrangement (SBA) with the International Monetary Fund (IMF), Fitch highlights the persistent high external funding risks facing the country.

With elections scheduled for February 2024, Fitch notes that any delays in the electoral process could jeopardize the durability of economic reforms and potentially reintroduce political volatility.

The agency underscores the importance of a swift negotiation for a follow-up IMF program after the conclusion of the current SBA in March next year, acknowledging, however, the risks of delays and uncertainty.

Fitch optimistic about IMF appproval

Fitch expresses optimism regarding the IMF board's approval of the recent staff-level agreement. The agreement reflects Pakistan's commitment to fiscal consolidation, energy price reforms, and a shift towards a more market-determined exchange rate regime.

However, the agency cautions against risks related to policy implementation, citing a historical tendency of political parties to falter in implementing or reversing reforms agreed with global lenders.

Concerns over dissipating consensus

While acknowledging the current consensus within Asian nations on measures necessary for continued funding, Fitch warns that this unity could erode swiftly once economic and external conditions improve.

The agency notes that Pakistan now has fewer financing options than in the past, underscoring the challenges posed by high medium-term financing requirements.

Total gross external financing

Authorities in Pakistan anticipate a total gross new external financing of $18 billion in the ongoing fiscal year, aiming to address nearly $9 billion in government debt maturities. Fitch predicts a current account deficit (CAD) of about $2 billion in FY24, attributing the narrowing CAD from over $17 billion in FY22 to fiscal policies, lower commodity prices, and limited foreign exchange availability.

In conclusion, while Fitch acknowledges positive strides in fiscal consolidation and economic reforms, the persistent risks surrounding external funding, political uncertainties, and potential policy challenges continue to weigh on Pakistan's credit rating.