IMF and Elections to Shape Pakistan’s Economic Future, Fitch Predicts

Fitch Ratings, a leading American credit rating agency, has warned that Pakistan’s economic stability will hinge on the successful implementation of the International Monetary Fund (IMF) programme and the outcome of the upcoming general elections in February 2024.

In its latest forecast report, Fitch said that Pakistan and Sri Lanka are among the countries where the elections could have a significant impact on their credit profiles, as both are reliant on the IMF and other official lenders for external financing support.

Fitch noted that the reform momentum in both countries has slowed down in the run-up to the elections, and the policy agendas of the next governments could affect their fiscal and external balances. However, the agency also said that it expects policy continuity to be the main theme in most places.

Fitch said that the Asia-Pacific region is expected to remain resilient in 2024 despite several challenges, such as slowing global growth, rising interest rates, geopolitical tensions, and property-sector issues in China.

The agency said that GDP growth will be higher for most Asia-Pacific sovereigns than for their peers in other regions, supported by a gradual recovery in the global tech cycle and robust domestic demand in some places.

However, Fitch said that Pakistan is one of the few countries in the region where growth will be below the peer median, along with Japan and New Zealand.

Fitch also said that fiscal outlooks will vary across the region, but high borrowing costs and modest fiscal deficit reductions will cause debt ratios to increase in 2024 in about half of the Asia-Pacific sovereigns, despite solid growth rates.

The agency said that China faces a rising challenge from its high government debt ratio and significant contingent liabilities.

Fitch Ratings is one of the “Big Three” credit rating agencies, along with Moody’s and Standard & Poor’s. It is one of the three nationally recognized statistical rating organizations designated by the U.S. Securities and Exchange Commission.

Fitch Ratings has been rating Pakistan since 1994. In 2023, the agency downgraded Pakistan’s sovereign rating to ‘CCC-’ in February, citing a high risk of default, but upgraded it to ‘CCC’ in July, after Pakistan secured a $6 billion loan package from the IMF under a three-year Extended Fund Facility (EFF) programme.

The IMF programme aims to stabilize Pakistan’s economy, reduce fiscal and current account deficits, and promote sustainable and inclusive growth. The programme also provides a framework for financial support from multilateral and bilateral partners.

Fitch Ratings is expected to conduct its next review of Pakistan’s sovereign rating in March 2024, after the elections and the completion of the first review of the IMF programme.

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