Editorial
Fitch Ratings has cautiously acknowledged Pakistan’s progress in restoring economic stability, projecting a modest 3% growth for the 2024-25 fiscal year. While the country has made strides in rebuilding external buffers and stabilizing economic conditions, critical challenges remain. The global rating agency has emphasized that the true test for Pakistan’s credit profile lies in its ability to push forward with difficult structural reforms, particularly as the nation faces upcoming reviews by the International Monetary Fund (IMF) and scrutiny from other international lenders.
The outlook on Pakistan’s economic recovery hinges on securing adequate external financing. Despite securing $6 billion in expected funding from multilateral institutions like the IMF, Fitch warns that much of this is earmarked for refinancing existing debt, leaving little room for new capital. Additionally, the agency points to growing reliance on commercial, reform-conditioned bilateral capital flows. The potential sale of a stake in a copper mine to a Saudi investor and agreements with Saudi Arabia on oil payments illustrate this shift towards more commercial and reform-driven funding.
Pl watch the video and subscribe to the YouTube channel of republicpolicy.com for quality podcasts:
Despite these hurdles, the Pakistani economy is showing signs of stabilization. The State Bank of Pakistan’s decision to cut policy rates to 12% in January 2025 signals progress in curbing inflation, which has significantly decreased from nearly 24% to just over 2%. This disinflation, aided by tight monetary policy and exchange rate stability, has helped Pakistan reduce its external financing needs and generate a current account surplus of approximately $1.2 billion by December 2024.
However, the country’s foreign reserves remain precariously low, with over $22 billion in public external debt maturing in FY25. While bilateral partners such as Saudi Arabia and the UAE have rolled over debts, the upcoming challenges in refinancing this debt and sustaining growth are daunting. For Pakistan to maintain its fragile recovery and meet IMF targets, it must prioritize structural reforms that will ensure sustainable financing and economic stability in the long run.
