Aamir Latif
10 July 2023•Update: 10 July 2023
KARACHI, Pakistan
Global rating agency Fitch on Monday upgraded Pakistan’s long-term foreign currency issuer default rating (IDR) to ‘CCC’ from ‘CCC-’, following a crucial $3-billion loan agreement with the International Monetary Fund (IMF) last month.
The agency cited the country’s improved external liquidity and funding conditions following the nine-month staff-level agreement with the IMF for its much-awaited decision.
“We expect the SLA (Staff level Agreement) to be approved by the IMF board in July, catalyzing other funding and anchoring policies around parliamentary elections due by October,” Fitch said in a statement.
However, the agency apprehended that the program’s implementation and external funding risks remain due to a “volatile political climate and large external financing requirement.”
The IMF’s board approval, according to the New York-based agency, would unlock an immediate disbursement of $1.2 billion, with the remaining $1.8 billion scheduled after reviews in November and February 2024.
The $3-billion funding, which comes after an eight-month delay, is higher than the remaining $2.5 billion from a $6.5-billion bailout package agreed in 2019, which expired late last month.
To secure the funding, Islamabad reversed subsidies in power and export sectors, hiked energy and fuel prices, and increased the key policy rate to 22%. It also implemented a market-based currency exchange rate, all of which led the inflation rate to reach a record 38% in May.
The agency highlighted several IMF-driven reforms taken by the government of Prime Minister Shehbaz Sharif, including measures to address shortfalls in its revenue collection, energy subsidies and policy inconsistent with a market-determined exchange rate, and import financing restrictions.
“We understand the government has already made all the required policy actions under the SBA. Nevertheless, there is still scope for delays and challenges to implementation as well as new policy missteps ahead of the October elections and uncertainty over the post-election commitment to the program,” it added.
Elections 'uncertainty'
Welcoming the development, Finance Minister Ishaq Dar in a statement termed the decision "another positive news towards the current economic revival journey."
Fitch, in a rare move, also discussed the ongoing political unrest in the South Asian country since the ouster of former Prime Minister Imran Khan through a no-confidence vote in April last year.
“In the ensuing crackdown, a large number of PTI members were arrested, with several high-ranking PTI politicians quitting politics. Nevertheless, the enduring popularity of Mr Khan and PTI creates policy uncertainty around elections,” the report said, citing the countrywide protests that broke out following Khan's arrest in May.
