Fitch Ratings has recommended Pakistan to remain under the International Monetary Fund’s (IMF) loan programme for the next few years as the bailout packages have supported economic stabilisation and pushed up credit rating.
It anticipated that Pakistan’s economy would outperform other regions amid global economic slowdown in the ongoing fiscal year.
In its APAC credit outlook conference on Wednesday, the global ratings agency recalled that it had upgraded Pakistan’s credit rating to “CCC” in July 2023 after the country acquired the loan programme of $3 billion in June.
Earlier, the agency downgraded the country’s rating to “CCC-” in February 2023 after its foreign exchange reserves hit multi-year lows below $3 billion, providing less than one month of import cover.
“Both (the rating actions in February and July) were related to changes in its external financing outlook,” Fitch said.
The agency said the “Asia-Pacific’s GDP growth (including Pakistan) would outperform other regions amid global slowdown.”
GDP growth will mostly be higher for APAC sovereigns than for their peers in other regions. “We forecast growth below the peer median for only a few APAC sovereigns, namely Japan, New Zealand and Pakistan.”
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“Growth should be supported by a gradual upturn in the global tech cycle and relatively robust domestic demand in some places. Weak global growth will likely weigh on demand for Asia’s electronics production and exports, but some high frequency data, for instance from Singapore and Korea, are pointing to the start of an upward trend in the generally short tech cycle, helped by technological developments such as 5G and Al (artificial intelligence).”
Most of the frontier market nations are to hold general elections in 2024. This may slow down the reform process, it said.
The agency added that elections were scheduled for 2024 in almost half of its rated portfolio of APAC sovereigns and would lead to some uncertainty, including in India, Indonesia, Korea, Pakistan and Sri Lanka.
“Reform momentum has slowed in the run-up to elections and the policy agendas of the next governments could affect credit profiles, but we generally expect policy continuity to be the main theme in most places. We view the chance of election outcomes influencing credit.”
Shifts in global manufacturing supply chains are becoming more apparent and may benefit some APAC sovereign credit profiles, but it believes changes will be gradual. “China’s FDI inflows have drastically fallen in recent quarters, but the country remains an integral hub in global supply chains despite geopolitical pressures.”
“Geopolitics will continue to play an important role for APAC, including around Taiwan and Korea.” (With additional input from our Karachi correspondent)
Published in The Express Tribune, January 25th, 2024.
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