Fitch Acknowledges Pakistan’s Economic Progress, Flags External Financing Risks

Global credit rating agency Fitch has recognized Pakistan’s progress in stabilizing its economy but cautioned that securing adequate external financing remains a major challenge.

In a report released on Friday, Fitch noted, “Pakistan has continued to make progress in restoring economic stability and rebuilding external buffers.”

Last year, the agency upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) from CCC to CCC+ after the country reached an agreement with the International Monetary Fund (IMF). However, Fitch clarified that a CCC rating still falls under speculative or junk status, signaling a high risk of default on debt obligations.

The agency stressed that Pakistan’s commitment to structural reforms will be crucial in upcoming IMF reviews and in securing further financing from multilateral and bilateral lenders.

Fitch also pointed out a sharp decline in inflation, attributing it to the central bank’s monetary policy. Inflation dropped to 2.4% in January, marking a nine-year low, largely due to falling prices of perishable food items.

It explained that Pakistan is experiencing disinflation—a slowdown in inflation—rather than deflation, which refers to an overall decline in prices. “The rapid disinflation reflects diminishing base effects from previous subsidy reforms and stability in the exchange rate, supported by a stringent monetary policy that has curtailed domestic demand and reduced external financing needs,” the report stated.

While Pakistan has made economic gains, Fitch’s warning about external financing underscores the challenges the country still faces in sustaining its recovery.