Global rating agency, Fitch Ratings has affirmed Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CCC’. The rating agency does not assign outlooks to sovereigns with a rating of ‘CCC+’ or below.

“The ‘CCC’ rating reflects high external funding risks amid high medium-term financing requirements, despite some stabilisation and Pakistan’s strong performance on its current Stand-by Arrangement (SBA) with the IMF,” Fitch said in a statement on Wednesday.

The agency went on to say that it expects elections to take place as scheduled in February and a follow-up IMF programme to be negotiated quickly after the SBA finishes in March 2024.

“However, there is still the risk of delays and uncertainty around Pakistan’s ability to do this. The elections could endanger the durability of recent reforms and leave room for renewed political volatility,” the rating agency stated.

According to Fitch, the successful IMF programme review reflects continued fiscal consolidation, energy price reforms in the face of a public backlash, and moves towards a more market-determined exchange rate regime.

The agency viewed that the caretaker government has taken new measures including sharp hikes to natural gas and electricity prices and a crackdown on the black market, helping narrow the gap between the parallel (kerb) and interbank exchange rates and bringing more foreign exchange into the banking system.

Fitch highlighted that parties across Pakistan have an extensive record of failing to implement or reverse reforms agreed with the IMF.

“We see a risk that the current consensus within Pakistan on the measures necessary to ensure continued funding could dissipate quickly once economic and external conditions improve, although Pakistan now has fewer financing options than in the past,” it said.

Expecting general elections to take place in February, the agency pointed out the possibility of a coalition government similar to that of the PDM coalition after PTI founder Imran Khan was ousted from the prime minister’s office.

“Former prime minister Imran Khan’s Pakistan Tehreek-e-Insaf party likely remains popular, but its electoral prospects may be limited by Mr Khan’s imprisonment and the departure of senior leaders. Space for political expression has shrunk since widespread protests in May 2023,” Fitch said.

Further delays to elections or renewed political volatility cannot be excluded and would jeopardise IMF negotiations and external funding, it added.