Fitch Ratings has projected a steady improvement in Pakistan’s economy, expecting real GDP growth to reach 3.5% by 2027, compared with 2.5% in 2024. The agency noted that the country is emerging from a period of severe instability marked by high inflation and currency volatility.
Inflation, which once touched 38% in May 2023, has cooled significantly to 4.1% in July 2025. The rating agency believes it will average 5% in 2025, creating space for growth. This, combined with a policy rate cut to 11% and improved external balances, is seen as a foundation for recovery.
Fitch highlighted that banks stand to gain from this stabilisation, as credit demand rises and reliance on public-sector lending eases. The sector has shown resilience, with return on equity normalising at 20% in early 2025, while the impaired loan ratio improved to 7.1%.
Pakistan’s credit standing has also improved. In April, Fitch upgraded the sovereign rating to ‘B-’/Stable, citing reforms and fiscal progress, while Moody’s recently lifted its rating to Caa1.
The agency warned, however, that banks’ health remains tied to sovereign risks and structural challenges. Large holdings of government securities and exposure to state-linked entities mean progress depends on sustained reform momentum.
Even so, Fitch said Pakistan’s banking system is well-capitalised, with a decade-high capital adequacy ratio of 21% by March 2025, offering stability in the face of lingering risks.
