Pakistan's credit rating gets an upgrade after IMF pact, it's now junk grade with a '+'

Fitch, a global credit rating agency, on Monday raised Pakistan’s credit rating rating to CCC+ from CCC, citing reduced risks from external funding after it secured a new bailout from the International Monetary Fund (IMF).

Pakistan’s long-term foreign-currency issuer default rating (IDR) has been upgraded to CCC+ from CCC.

With the upgrade, the rating agency said that while Pakistan remains below investment grade, there is a lower chance of a default now.

“The upgrade reflects greater certainty over continued availability of external funding, in the context of Pakistan’s staff-level agreement (SLA) with the IMF on a new 37-month USD7 billion Extended Fund Facility (EFF),” Krisjanis Krustins, an analyst at the rating company wrote in a note.

“Strong performance on the previous, more temporary IMF arrangement helped the country narrow fiscal deficits and rebuild foreign exchange (FX) reserves, and further improvements are likely,” the rating agency said.

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“Pakistan and the IMF reached the SLA on 12 July. Before IMF Board approval, which we assume by end-August, the government will have to obtain new funding assurances from bilateral partners, chiefly Saudi Arabia, the UAE and China, totalling about USD4 billion-5 billion over the duration of the EFF. We believe this will be achievable, given the strong past record of support and significant policy measures in the recent budget for the fiscal year ending June 2025 (FY25),” Fitch said.

Pakistan is expecting final approval from the IMF for a new $7 billion loan deal by August-end.

As per the IMF, the new programme, which needs to be validated by the Fund’s Executive Board, should help Pakistan to “cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth”.

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Support from creditor nations including China, Saudia Arabia, and the UAE has also helped Pakistan manage foreign debt obligations as its coalition government implements tough reforms such as widening the tax net and cutting spending on energy subsidies.

In July last year, Fitch had upgraded Pakistan’s long-term foreign currency issuer default rating from ‘CCC-’ to ‘CCC’ following the approval of an IMF loan. However, the rating had still indicated a significant country credit risk.

The news of upgrade of Pakistan’s rating has been hailed by Prime Minister Shehbaz Sharif who appreciated the efforts of the country’s Finance Minister Muhammad Aurangzeb and his team.

The prime minister said that Pakistan had begun receiving the fruits of the government’s policy of sacrificing politics for the sake of the state in the shape of improvement in the country’s economy.

Sharif said that the upgrade was the international recognition of his government’s right economic policies. He also emphasised that the Pakistan’s government was working hard on the economic reforms agenda, the fruits of which would reach the people soon.

“The reports of Fitch and other international financial institutions are important for the economic improvement of Pakistan. We will move forward with more effort and passion on the path of economic improvement of the country," he said.

With inputs from agencies