Fitch Ratings on Monday affirmed Pakistan’s long-term foreign currency issuer default rating (IDR) at ‘B-’ with a “stable outlook”.
“Pakistan’s rating affirmation reflects progress on fiscal consolidation and macro stability measures, broadly in line with its International Monetary Fund (IMF) programme and supporting its funding capacity,” the US-based rating agency Fitch Ratings, one of the world’s top three agencies, said.
“Foreign exchange buffers rebuilt over the past year provide a cushion against the economic impact of the war in the Middle East, while Pakistan’s role as a ceasefire broker may provide tangible benefits and partly offset external pressures,” it said.
However, it highlighted that the country’s high exposure to the global energy price shock remained a key risk, particularly if it led to a sharp drop in foreign exchange reserves.
Talking about key rating drivers, Fitch said the authorities reached a staff-level agreement with the IMF on its loan programmes in March, unlocking a combined $1.2 billion.
“The programme will continue to provide a key policy anchor, particularly for the fiscal framework, and will help mobilise additional multilateral and bilateral support,” it said.
However, it pointed out that Pakistan’s vulnerability to energy shocks.
“Pakistan sources up to 90 per cent of oil from the Gulf and has limited storage capacity, creating high exposure to the Middle East conflict and constricted energy supply via the Strait of Hormuz,” it said, adding the fuel subsidies since early March had been funded by reallocating expenditure from other areas of the budget, while costs had been reduced by large pump-price hikes and the switch to a more targeted support scheme from April.
