© Reuters. FILE PHOTO: People stand by a makeshift stall selling imported general items in a market in Karachi, Pakistan, February 15, 2023. REUTERS/Akhtar Soomro/File Photo
By Asif Shahzad
ISLAMABAD (Reuters) – Fitch credit rating agency on Monday upgraded Pakistan’s long-term foreign currency issuer default rating to CCC from CCC-, a positive sign for a country reeling under its worst economic crisis.
Fitch said in a statement the upgrade reflected the country’s improved external liquidity and funding conditions following a staff level agreement with the International Monetary Fund (IMF), but warned that the fiscal deficit still remained wide.
“We expect the consolidated general government (GG) fiscal deficit to widen to 7.6% of GDP in FY24,” it said.
Pakistan’s budget for FY24 has estimated the fiscal deficit at 6.5% of GDP. Pakistan revised the budget ahead of the IMF deal where the finance minister said the new measures will improve the deficit, but didn’t give a figure.
Finance Minister Ishaq Dar welcomed the upgrade.
“Another positive news towards current economic revival journey, God be praised,” he said in a statement.
Islamabad signed the short-term IMF deal on June 30 under a standby arrangement that will disburse $3 billion over a nine- month period, subject to approval by the IMF’s board, which is meeting on July 12.
The rating agency said it would expect Pakistan to see a modest recovery for the rest of the FY24 on “new external financing flows”, although the fresh financing will also lead to a widening of the current account deficit.
With sky-high inflation and foreign exchange reserves barely enough for a month of controlled imports, analysts say Pakistan’s economic crisis could have spiralled into a debt default in the absence of the IMF bailout.
The IMF deal will also unlock other external financing.
The authorities expect $25 billion in gross new external financing in FY24, against $15 billion in public debt maturities, including $1 billion in bonds and $3.6 billion to multilateral creditors, the agency said.
It also warned the IMF programme implementation and external funding could run risks due to a “volatile” political climate and large external financing requirements.
The nation of 220 million has seen acute political uncertainty since former Prime Minister Imran Khan was ousted in a parliamentary vote of confidence in April 2022.
The IMF’s team last week met all mainstream political parties to seek support and consensus for the programme in the lead-up to national elections due in October.
Khan’s party said he gave his support for the deal.
