Pakistan Credit Rating Upgraded to ‘B’ by S&P Global
ISLAMABAD: Pakistan has received a significant boost to its economic outlook after S&P Global Ratings upgraded the country’s long-term sovereign credit rating from ‘B-‘ to ‘B’, while maintaining a stable outlook. The move reflects growing confidence in Pakistan’s improving financial position, ongoing economic reforms, and stronger external accounts.
The international credit rating agency also kept Pakistan’s short-term sovereign rating unchanged at ‘B’ and upgraded its transfer and convertibility assessment from ‘B-‘ to ‘B’. This indicates that Pakistan is better positioned to meet its near-term financial obligations while making it easier for international investors to transfer funds into and out of the country.
Why the Upgrade Matters
A sovereign credit rating is one of the key indicators used by global investors to measure a country’s financial strength and ability to repay its debts. A higher rating generally improves investor confidence, lowers borrowing costs, and enhances a country’s ability to attract foreign investment.
According to S&P Global Ratings, Pakistan’s improved institutional framework and successful implementation of economic reforms under the International Monetary Fund (IMF) programme played a major role in the latest upgrade.
IMF Reforms Strengthen Pakistan’s Economy
The agency said Pakistan has made notable progress under the $7 billion IMF Extended Fund Facility (EFF) launched in September 2024. Most programme targets have been achieved on schedule, allowing the country to receive timely IMF financial support.
S&P noted that these reforms have helped improve fiscal management, strengthen foreign exchange reserves, and restore macroeconomic stability after years of financial challenges.
The report also highlighted that Pakistan’s relatively stable political environment has supported the implementation of key economic reforms.
Foreign Exchange Reserves Continue to Rise
Pakistan’s external financial position has improved significantly over the past two years. According to S&P, the country’s foreign reserves reached $25.3 billion at the end of last month, including the State Bank of Pakistan’s gold holdings. This marks a sharp recovery from $6.7 billion recorded in December 2022.
The agency believes these reserves are sufficient to meet Pakistan’s external debt repayments of approximately $16.4 billion over the coming year.
Fiscal Deficit Expected to Decline
S&P expects Pakistan’s fiscal deficit to fall to around 4% of GDP by FY2027, compared with nearly 8% during the economic crisis in fiscal years 2022 and 2023.
The agency also expects continued financial support from multilateral institutions, friendly countries, and commercial lenders, reducing pressure on Pakistan’s external financing needs.
Interest Rates and Economic Outlook
Although the State Bank of Pakistan (SBP) tightened monetary policy earlier this year to address inflation linked to regional geopolitical tensions, S&P believes domestic interest rates remain considerably lower than previous peak levels.
The rating agency expects continued structural reforms to support sustainable economic growth, improve public finances, and strengthen Pakistan’s overall financial stability.
What Could Change Pakistan’s Rating?
S&P warned that any slowdown in fiscal reforms or deterioration in the country’s financial indicators could result in a future downgrade.
However, the agency said Pakistan’s rating could be upgraded again if fiscal deficits continue to shrink, government revenues increase, financing costs decline, and external debt indicators improve further.
Market Experts Welcome the Decision
Awais Ashraf, Director of Research at AKD Securities, said Pakistan’s reform agenda has resulted in stronger tax collection, improved fiscal discipline, and better management of government spending.
He added that higher workers’ remittances and expanding IT exports have strengthened the country’s external account, while foreign exchange reserves reached a record $18.4 billion by the end of June.
Ashraf also pointed out that despite these positive economic developments, the KSE-100 Index still appears undervalued compared to previous periods when Pakistan held a similar credit rating.
Previous Ratings
The latest announcement follows recent positive assessments from other international institutions.
Earlier this year, Fitch Ratings maintained Pakistan’s long-term foreign currency rating at ‘B-‘ with a stable outlook while warning that rising global energy prices remain a key risk.
Last year, S&P had already upgraded Pakistan from ‘CCC+’ to ‘B-‘, and the latest improvement to ‘B’ marks another important milestone in the country’s economic recovery.