The global credit rating agency Fitch has acknowledged the advancements Pakistan has made in achieving economic stability but also warned that obtaining sufficient external financing remains a significant challenge for the South Asian country.

“Pakistan has continued to make progress in restoring economic stability and rebuilding external buffers,” it said in a note on Friday.

Last year, the credit rating agency upgraded Pakistan’s long-term foreign-currency issuer default rating (IDR) from CCC to CCC+, following the country’s agreement with the International Monetary Fund (IMF).

Fitch further explained that a CCC rating is considered speculative or junk status, indicating a high risk of the issuer defaulting on its debt obligations.

It has acknowledged that “Pakistan’s advancement in structural reforms will be crucial for upcoming reviews of its IMF programme and for securing ongoing financing from various multilateral and bilateral lenders.”

The agency also noted a significant disinflation trend within the country, pointing out that the central bank’s monetary policy has contributed to a decline in inflationary pressures, which fell to 2.4% in January.

Annual inflation has continued to decrease, reaching a nine-year low of 2.4% year-on-year in January, primarily driven by a drop in the prices of perishable food items.

Pakistan experiences disinflation, which indicates a slowdown in inflation rates, whereas deflation refers to an overall decline in general price levels.

“The rapid disinflation reflects diminishing base effects from previous subsidy reforms and stability in the exchange rate, supported by a stringent monetary policy that has curtailed domestic demand and reduced external financing needs.”

Fitch has pointed out that obtaining sufficient external financing remains a significant challenge for Pakistan, particularly due to large debt maturities and the existing exposure of lenders.

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“Securing sufficient external financing remains a challenge, considering large maturities and lenders’ existing exposures,” it said.

The authorities have projected approximately $6 billion in funding from multilateral sources, including the IMF, for the fiscal year 2025. But around $4 billion of this amount is intended to refinance current debt.

A recently announced 10-year framework with the World Bank Group, valued at $20 billion, aligns with such funding efforts. The World Bank’s current project portfolio in Pakistan stands at about $17 billion, and its net new yearly lending has averaged around $1 billion over the last five years, according to Fitch Ratings.

The global rating agency anticipates that new bilateral capital inflows will increasingly be “commercial and conditional on reforms.”