Fitch upgrades Pakistan to ‘CCC’ after IMF pact

Fitch Ratings on Monday upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) to ‘CCC’ from ‘CCC-’ reflecting reduced external financing risks with improved external liquidity and funding conditions following recent staff-level agreement (SLA) with the IMF on a nine-month Stand-by Arrangement (SBA) in June. “We expect the SLA to be approved by the IMF board in July, catalysing other funding and anchoring policies around parliamentary elections due by October”, said the US-based rating agency that also noted risks to programme implementation and external funding due to a volatile political climate and large external financing requirement. In a statement, Fitch said the government had now taken all those steps that had held up three quarterly reviews of the previous $6.5bn Extended Fund Facility (EFF), which expired on June 30. These included measures to address shortfalls in government revenue collection, energy subsidies and policies inconsistent with a market-determined exchange rate, including import financing restrictions. Most recently, the government amended its proposed budget for the fiscal year ending June 2024 (FY24) to introduce new revenue measures and cut spending, following additional tax measures and subsidy reforms in February. The authorities appeared to abandon exchange-rate management in January 2023, although guidelines on prioritising imports were only removed in June.