Pakistan’s Economic Stability Strengthens Amid Reforms

Fitch Highlights Economic Progress and Challenges

Pakistan’s Economic Stability Strengthens Amid Reforms, as highlighted in a recent Fitch Ratings report. The agency emphasized that advancing these reforms is crucial for securing continuous financial support from multilateral and bilateral lenders. The report also noted that the upcoming International Monetary Fund (IMF) reviews will play a key role in sustaining progress.

The State Bank of Pakistan (SBP) reduced its policy rate to 12% on January 27, reflecting notable progress in controlling inflation. Consumer price inflation dropped to just over 2% year-on-year in January 2025, compared to an average of nearly 24% in FY24. This rapid disinflation resulted from exchange rate stability, subsidy reforms, and a tight monetary stance.

Improved stability and declining interest rates are benefiting economic activity. The private sector credit growth turned positive in real terms in October 2024, marking the first improvement since June 2022. Strong remittance inflows, agricultural exports, and disciplined fiscal policies helped the current account post a surplus of $1.2 billion in the last six months of 2024.

Foreign exchange reserves have exceeded IMF targets, reaching $18.3 billion by the end of 2024. However, reserves remain low compared to funding needs, with over $22 billion in external debt maturing in FY25. Fitch expects new bilateral capital inflows to be increasingly linked to economic reforms.

Progress on fiscal reforms continues, though challenges persist. The primary fiscal surplus outperformed IMF targets, but tax revenue growth fell short. Despite these obstacles, sustained reserve recovery, reduced external financing risks, and fiscal consolidation could result in positive rating actions. The Pakistan‘s Economic Stability Strengthens Amid Reforms report underscores that external liquidity challenges remain, making timely IMF reviews essential.

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