- The drop in the policy rate in January has shown progress in learned inflation.
- Credit growth in the private sector becomes positive in October.
- Exchange reserves should exceed the objectives.
Pakistan continued to move forward in the restoration of economic stability and the reconstruction of external stamps, said Fitch Ratings in a note on Thursday.
He added that progress on difficult structural reforms would be essential to the next exams of the International Monetary Fund (IMF) program and to the continuous financing of multilateral and bilateral lenders.
The decision of the State Bank of Pakistan (SBP) to reduce the policy rate to 12% on January 27, underlined recent progress in learned inflation, noted Fitch. Consumer prices inflation fell to just over 2% in annual shift in January 2025, compared to an average of almost 24% during the financial year ending in June 2024 (FY24).
He wrote that rapid disinflation reflected the discoloration of the basic effects of grant reforms and the stability of previous exchange rates, supported by a tight monetary position which has controlled domestic demand and external financing needs.
Economic activity now benefits from the stability and the decrease in interest rates, after having absorbed stricter policy parameters, added Fitch.
It provides for real value added growth of 3.0% during the 2010 financial year, noting that credit growth in the private sector has become positive in real terms in October 2024 for the first time since June 2022.
Strong fund entries, robust agricultural exports and close political measures helped the Pakistan current account after an excess of around 1.2 billion dollars (more than 0.5% of GDP) in the six months until six months ‘In December 2024, reversing a deficit of similar size in FY24.
Fitch said that foreign exchange market reforms in 2023 had facilitated this change. He had planned a slight expansion of the current account deficit during the 2010 financial year when he improved the Pakistan note at “CCC +” in July 2024.
The exchange reserves should exceed the objectives under the installation of the extended fund of the Pakistan IMF (EFF) and previous projections of fitch. Gross official reserves reached more than $ 18.3 billion in late 2024, about three months of external payments, compared to around $ 15.5 billion in June.
However, reserves remain low compared to financing needs, with more than $ 22 billion in public external debts to maturation during the 2010 financial year.
This includes nearly $ 13 billion in bilateral deposits, which, according to Fitch, will be returned, citing commitments to the IMF. Saudi Arabia exceeded $ 3 billion in December, while the water extended $ 2 billion in January.
Fitch has written that new flows of bilateral capital should be more and more commercial and linked to reforms.
He cited discussions on the partial sale of government participation in a copper mine in a Saudi investor as an example. Pakistan and Saudi Arabia have also recently agreed with a delayed oil payment installation.
Despite the important deadlines and existing exhibitions of lenders, ensuring sufficient external funding remains a challenge. Authorities have budgeted for around $ 6 billion in multilateral funding, including the IMF, during fiscal year 25, but Fitch noted that around $ 4 billion in this would effectively refin the existing debt.
A recently announced executive of $ 20 billion over 10 years with the World Bank group is largely aligned with expectations, with the group’s current project portfolio at $ 17 billion and a new net annual loan of 1 billion Dollars in the past five years.
Fitch has recognized the progress of budgetary reform despite certain setbacks. The main budgetary surplus has outraged the IMF objectives, although the growth of federal tax revenues during the first half of fiscal year 25 is not below the IMF indicative performance criterion.
He also noted that even if all the provinces have legislated to higher agricultural income taxes – a key structural condition of the EFF – the deadline for implementing the January 2025 reform was missed due to delays.
In July, Fitch said that positive rating measures could follow the resumption of the sustained reserve, the softening of external financing risks and budgetary consolidation in accordance with the commitments of the IMF.
However, he warned that the deterioration of external liquidity, such as delays in IMF journals, could trigger a negative action.