Karachi: Fitch Ratings upgraded Pakistan's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'CCC' from 'CCC-' as country managed to clinch a 'last-minute' staff-level agreement with International Monetary Fund (IMF).

"Upgrade reflects Pakistan's improved external liquidity and funding conditions following its Staff-Level Agreement (SLA) with IMF on nine-month Stand-by Arrangement (SBA) in June," said Fitch Ratings.

"We expect SLA to be approved by IMF Board in July catalysing other funding and anchoring policies around parliamentary elections due by October.

"Nevertheless, programme implementation and external funding risks remain due to volatile political climate and large external financing requirement," it said.

Agency said Pakistan in its bid to appease Washington-based lender has recently taken measures to address shortfalls in government revenue collection, energy subsidies and policies inconsistent with market-determined exchange rate, including import financing restrictions.

"These issues held up last three reviews of Pakistan's previous IMF programme, before its expiry in June," it said.

However, US based credit rating agency expressed concerns over risk of implementation on commitments agreed by IMF.

"Pakistan has an extensive record of going off-track on its commitments to IMF. We understand government has already made all required policy actions under SBA. Nevertheless, there is still scope for delays and challenges to implementation as well as new policy missteps ahead of October elections and uncertainty over post-election commitment to programme," it said.

Fitch Ratings said IMF board approval of SBA will unlock an immediate disbursement of $ 1.2 billion, with remaining $ 1.8 billion scheduled after reviews in November and February 2024.

"SBA should also facilitate disbursement of some of dollar 10 billion in aid pledges made at January 2023 flood relief conference, mostly in form of project loans (2 billion dollar in budget)," it said.

However, Pakistan's overall funding targets remain ambitious, noted rating agency. "Authorities expect $ 25 billion in gross new external financing in FY24, against $ 15 billion in public debt maturities, including $ 1 billion in bonds and $ 3.6 billion to multilateral creditors.

"Government funding target includes $ 1.5 billion in market issuance and $ 4.5 billion in commercial bank borrowing, both of which could prove challenging, although some of loans not rolled over in FY23 could now return," it said.

Fitch was of view that $ 9 billion in maturing deposits from China, Saudi Arabia and UAE will likely be rolled over, as in FY23.

It said that current account deficit (CAD) narrowed sharply, driven by earlier restrictions on imports and FX availability, tighter fiscal and economic policies, measures to limit energy consumption and lower commodity prices.