KARACHI: Fitch Ratings has upgraded Pakistan’s Long Term Issuer Default Rating by one notch to CCC+, which reflects greater certainty over continued availability of external funding in the context of new IMF program of $7.0 billion signed on July 12, 2024, analyst said. This is second upgrade by Fitch in last one year, as previously in July 2023, Fitch had upgraded Pakistan to CCC.
Fitch expects, Pakistan Current Account Deficit to clock in at $4.0 billion (1.0 percent of GDP) in FY25 from $700 million in FY24.
Pakistan requires external debt repayments of $22 billion in FY25, of which $13 billion are regularly rolled-over. The government of Pakistan has identified $24 billion in gross external financing, mostly from bilateral and multilateral sources including Panda bond issuance. While, this does not include renewal of oil facility from Saudi Arabia, Euro/Sukuk bond issuance, FDI and non-resident inflows, and climate finance. These funds will be upside to the overall funding plan.
“We believe, government will approach IMF for the climate finance during the first review of new IMF program”, Muhammad Sohail, leading analyst and CEO of Topline Securities said. Similarly, probability of renewal of oil facility is also higher given the past practice.”We believe Sukuk/ Euro bond issuance plan may unfold after Jan 2025.”
Fitch expects Pakistan reserves to reach $22 billion by FY26 from current level of $15billion. This includes gold also.
Fitch expects fiscal balance of 0.8 percent of GDP, lower than IMF projected numbers of 2.0 percent of GDP, with gradually improving to 1.3 percent of GDP by FY26. Headline deficit is expected to be around 6.9 percent of GDP in FY25 (against 5.9 percent projected by IMF) during FY25.
Factors that can lead to rating upgrade include sustained recovery in foreign currency reserves; further significant easing of external risks and implementation of fiscal consolidation plans in line with IMF program, leading to increased confidence in downward trajectory for Government debt.
While factors that can lead to rating downgrade are renewed deterioration in external liquidity conditions that could result from delays in IMF program or indications that the authorities are considering debt restructuring.
Copyright Business Recorder, 2024