Fitch’s statement on Wednesday indicated an expectation for the scheduled February elections and a subsequent swift negotiation of an IMF program after the SBA concludes in March 2024. However, the agency stressed the lingering uncertainty around Pakistan’s ability to achieve this timeline. It cautioned that any potential delay in elections could undermine recent reforms, leaving room for renewed political volatility. While Fitch anticipated unproblematic approval from the IMF’s board for the recent staff-level agreement, it acknowledged the risks to policy implementation. The agency cited Pakistan’s historical tendency, across the political spectrum, to either fail in implementing or reverse reforms previously agreed with the IMF.
The rating agency commended the caretaker government for front-loading many policy commitments under the SBA and implementing new measures, including significant increases in natural gas and electricity prices. These measures, along with a crackdown on the black market, aimed at narrowing the gap between parallel and interbank exchange rates, bringing more foreign exchange into the banking system. Fitch underscored the potential challenges awaiting Pakistan in any subsequent IMF program, noting that sweeping structural reforms might be necessary, potentially conflicting with entrenched vested interests within the country.
The agency highlighted the ambitious external funding targets of $18 billion (gross) for the current fiscal year against nearly $9 billion in government debt maturities. These maturities include a $1 billion bond due in April and $3.8 billion to multilateral creditors, excluding routine rollovers of bilateral deposits. As of end-September, maturities in the remaining three quarters of FY24 amounted to just over $7 billion, with the funding target including $1.5 billion in Eurobond/sukuk issuance and $4.5 billion in commercial bank borrowing — a challenge that Fitch deemed likely to prove formidable. Fitch emphasized the shrinking space for political expression since widespread protests in May 2023, cautioning that any further delays or renewed political volatility could not be ruled out. Such occurrences could not only jeopardize IMF negotiations but also pose risks to external funding for Pakistan.
Fitch, agency highlighted the risk that such delays might jeopardize ongoing IMF negotiations; thereby affecting the nation’s economic standing. The agency acknowledged both high but gradually diminishing external risks. The ‘CCC’ rating underscores the prevalent high external funding risks amidst substantial medium-term financing requirements, despite some stabilization and Pakistan’s commendable performance in its ongoing SBA with the IMF staff. Anticipating the general elections to unfold as scheduled in February, Fitch envisioned the formation of a coalition government similar to Shehbaz Sharif’s previous administration. However, it expressed reservations about the political landscape, pointing to the potential limitations faced by the Pakistan Tehreek-i-Insaf due to Imran Khan’s imprisonment and the departure of senior party leaders.
The global evaluation agency Fitch, on the current Wednesday, upheld Pakistan’s extended foreign currency issuer default rating, maintaining it at the level of ‘CCC.’ The agency acknowledged the anticipation of general elections proceeding as planned, with the likelihood of forming a coalition government reminiscent of the governance style seen in Shehbaz Sharif’s administration. This persistent credit rating remains unaltered following the recent International Monetary Fund (IMF) staff-level agreement on the initial review of Pakistan’s nine-month standby arrangement (SBA), concluded in the previous month. Fitch Ratings, a prominent global rating entity headquartered in the United States, expressed apprehension concerning the uncertainties encircling the imminent elections and the potential emergence of political instability. Such instability could impede the execution of structural reforms, posing economic challenges for the nation.
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