ISLAMABAD: Fitch Ratings has affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-’ with a Stable Outlook.
The rating agency has projected inflation to average 7.9 percent in fiscal year 2026—higher than last year—while GDP growth is projected to edge up to 3.1 percent, slightly up from 3 percent in fiscal year 2025.
Fitch Ratings said that 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.
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Foreign exchange (FX) 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. The country’s high exposure to the global energy price shock nonetheless remains a key risk, particularly if it leads to a sharp drop in forex reserves.
It further stated that the authorities reached a staff-level agreement with the IMF on the third review of Pakistan’s Extended Credit Facility (ECF) and second review of the Resilience and Sustainability Facility in March 2026, unlocking a combined USD1.2 billion if the agreement is approved by the IMF board.
The programme will continue to provide a key policy anchor, particularly for the fiscal framework, and will help mobilise additional multilateral and bilateral support. The rating agency said that Pakistan sources up to 90 percent 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. Fuel subsidies since early March have been funded by reallocating expenditure from other areas of the budget, while costs have been reduced by large pump-price hikes and the switch to a more targeted support scheme from April. “We expect the overall impact on the fiscal deficit to be contained, as the government is likely to cut other spending”, Fitch added.
The rating agency noted that higher world energy prices will raise inflation in the coming months, especially with the switch to more targeted subsidy support and base effects. “We expect inflation to average 7.9 percent in fiscal year 2026 (ending 30 June 2026), above the fiscal year 2025 level but well below the 23.4 percent in fiscal year 2024”, it added.
The State Bank of Pakistan (SBP) cut the policy rate to 10.5 percent by the end of 2025, from 22 percent at the end of May 2024, and market interest rates fell in tandem. However, the term interbank rate had risen to about 100bp above the policy rate by early April, on inflation concerns tied to the tight energy supply. The shock will detract from GDP growth, but we still expect growth of 3.1 percent in fiscal year 2026, up slightly from 3 percent in fiscal year 2025, due to improved confidence from lower borrowing costs.
“We assume external debt amortisations will rise to USD12.8 billion (2.9 percent of GDP) in fiscal year 2026, from almost USD8 billion in 2025. A USD3.5 billion deposit will be repaid to the UAE in April. Our amortisation projections exclude another USD9.2 billion in bilateral deposits and loans we expect to be rolled over.
Copyright Business Recorder, 2026
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