Fitch affirms Pakistan rating at B- with stable outlook

April 13, 2026 (MLN):  Fitch Ratings has affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook, citing progress on fiscal consolidation and macroeconomic stabilisation, largely supported by the country’s ongoing International Monetary Fund (IMF) programme.

According to Fitch, the rating reflects improvements in fiscal management and external financing conditions. Rebuilding of foreign exchange reserves over the past year has provided some cushion against global shocks, including the economic impact of the ongoing Middle East conflict. However, Pakistan remains highly exposed to energy-related risks, particularly due to its heavy reliance on imported fuel.

Fitch highlighted the recent staff-level agreement between Pakistan and the IMF on the third review of the Extended Credit Facility and the second review of the Resilience and Sustainability Facility. Approval by the IMF board could unlock about $1.2bn, helping reinforce policy discipline and unlock further bilateral and multilateral funding.

Pakistan imports around 90% of its oil from Gulf countries and has limited storage capacity, making it vulnerable to supply disruptions. Rising global energy prices are expected to increase inflation, with average inflation forecast at 7.9% in FY26, up from FY25 but still significantly below the peak of 23.4% in FY24.

While fuel subsidies have recently been restructured, higher energy costs and tighter financial conditions may weigh on economic growth.

Nevertheless, Fitch expects GDP growth to edge up to 3.1% in FY26, compared with 3.0% in FY25, supported by improved investor confidence and lower borrowing costs.

Fitch expects Pakistan’s current account to shift back into deficit at around 1.1% of GDP in FY26, following a rare surplus of 0.5% in FY25. The reversal reflects higher imports driven by energy costs and recovering domestic demand.

The agency noted that the rupee has appreciated significantly in real terms since early 2023, which could weigh on exports and contribute to a wider trade deficit. Hydrocarbons continue to account for roughly one-quarter to one-third of Pakistan’s total goods imports.

External debt repayments are expected to rise to $12.8bn in FY26, compared to nearly $8bn in FY25. Fitch expects Pakistan to rely on multilateral, bilateral, and commercial financing, with plans to issue a panda bond during the current fiscal year.

Foreign exchange reserves are expected to decline modestly to $21.3bn by end-FY26, covering around 2.9 months of external payments. Fitch also noted that net FX reserves remain negative due to deposits and swap arrangements.

Fitch forecasts Pakistan’s primary surplus to narrow to 2.1% of GDP in FY26, slightly below official targets. Fiscal deficits are expected to remain around 5.3% of GDP in the medium term. Government debt is projected to decline gradually to 68.9% of GDP in FY26, still above the median for similarly rated countries.

Fitch warned that Pakistan’s rating could be downgraded if external liquidity weakens sharply or if fiscal consolidation stalls, leading to rising debt levels. Conversely, stronger external financing, sustained reserve accumulation, and durable fiscal reforms could support a rating upgrade.

Governance indicators remain a key weakness, with Pakistan scoring poorly on political stability, rule of law, and corruption metrics. These governance challenges continue to weigh on the country’s overall credit profile.

Overall, Fitch’s assessment reflects cautious optimism: Pakistan has made progress on macroeconomic stabilisation, but significant external and fiscal vulnerabilities persist.

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