Fitch Ratings has maintained Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook, citing ongoing fiscal adjustments under the IMF programme and improved but still fragile external buffers.

The agency said Pakistan’s progress on fiscal consolidation and macroeconomic stabilisation, broadly aligned with IMF conditions, continues to support funding access. However, it warned that the economy remains highly exposed to external shocks, particularly global energy volatility linked to Middle East tensions.

IMF Programme Remains the Anchor

Fitch highlighted continued IMF engagement, noting a staff-level agreement on the third review of Pakistan’s Extended Credit Facility and second review of the Resilience and Sustainability Facility. If approved, this would unlock around $1.2 billion in new disbursements, helping stabilise external financing and support reform implementation.

Energy and Inflation Pressures

Pakistan’s heavy dependence on Gulf oil imports—around 90% of crude needs—leaves it vulnerable to supply disruptions and price spikes. Fitch said recent subsidy adjustments and fuel price increases are helping contain fiscal pressure, though inflation is expected to rise, averaging 7.9% in FY26.

Growth and External Position

The agency expects GDP growth of about 3.1% in FY26, slightly higher than the previous year, supported by lower interest rates and improving sentiment.

However, external financing needs remain large. Pakistan’s external debt repayments are projected at $12.8 billion in FY26, including a major repayment to the UAE. Funding is expected to come mainly from multilateral lenders, bilateral partners, and selective market borrowing.

Fiscal and Debt Outlook

Fitch expects Pakistan’s primary surplus to narrow to 2.1% of GDP, while the overall fiscal deficit remains elevated at around 5.3% of GDP. Public debt is projected to ease slightly to 68.9% of GDP, but remains significantly higher than peer averages.

External Account and Reserves

The current account is forecast to return to a deficit of 1.1% of GDP in FY26, after a rare surplus in the previous year. Foreign exchange reserves are expected to decline to about $21.3 billion by end-FY26, covering under three months of external payments.

Key Risks

Fitch flagged several downside risks, including sustained high oil prices, weaker remittances, and delays in fiscal reforms. Regional tensions, including border instability with Afghanistan, were also noted as a potential pressure point, though not part of the baseline scenario.

Outlook

The rating could come under pressure if external liquidity worsens or fiscal consolidation stalls, leading to higher debt and weaker debt-servicing capacity. On the upside, stronger reserve accumulation and sustained reform implementation could support an upgrade over time.