S&P Global Ratings Upgrades Pakistan's Sovereign Credit Rating to 'B'

Islamabad, Pakistan Jul 22, 2026 ALN: S&P Global Ratings has made a significant decision to upgrade Pakistan's long-term sovereign credit rating from ‘B-’ to ‘B’, a move that reflects an improving external position and gradual macroeconomic stabilization within the country. This upgrade was announced on a Wednesday, and alongside the long-term rating upgrade, S&P affirmed Pakistan's short-term sovereign credit rating at ‘B’ and raised its transfer and convertibility assessment to ‘B’ from ‘B-’.

Sovereign credit ratings play a critical role in the global financial landscape, as they provide international investors with a quantifiable assessment of country risk. These ratings can significantly influence investment decisions, as they help coordinate investors' beliefs about the risk associated with lending to or investing in a particular country. The United Nations Development Programme emphasizes the importance of these ratings in shaping economic conditions and investor confidence.

The rationale behind S&P's upgrade is rooted in the belief that Pakistan has strengthened its institutional capacity, which has enabled the government to implement crucial reforms mandated by the International Monetary Fund (IMF). The agency stated, "Our upgrade on Pakistan is predicated on improved institutional stability that has helped to implement critical IMF programme reforms." These reforms have reportedly accelerated fiscal consolidation and helped rebuild external buffers, which are important for economic stability.

In its statement, S&P highlighted that the institutional framework within Pakistan has shown notable improvement over the past two years, particularly with the successful passage of the IMF’s Extended Fund Facility (EFF) $7 billion programme in September 2024. This programme has been described as pivotal in restoring macroeconomic stability and replenishing the country’s foreign reserves, which had previously dwindled to concerning levels.

As of the end of last month, Pakistan's foreign reserves had risen to $25.3 billion, including the central bank’s gold holdings. This represents a substantial recovery from a multi-year low of $6.7 billion recorded in December 2022. S&P noted that the current level of reserves is more than adequate to cover the government's external principal payments, which are projected to be $16.4 billion over the next 12 months. This improvement in reserves is a positive indicator of the country’s financial health and ability to meet its international obligations.

The credit rating agency also expressed confidence in Pakistan's ability to diversify its external funding options through multilateral and bilateral funding, in addition to continued access to commercial borrowing. This diversification is crucial for enhancing the country’s economic resilience and reducing reliance on any single source of funding.

Moreover, S&P's outlook on Pakistan's fiscal situation appears optimistic, as it forecasts a reduction in the general government deficit to four percent of GDP for the fiscal year 2027, down from nearly eight percent during the fiscal crises of 2022 and 2023. This projection underscores the government's commitment to structural reforms aimed at stabilizing the economy and improving fiscal health.

Despite the tightening of monetary conditions by the State Bank of Pakistan (SBP) in April due to rising inflationary pressures, the agency noted that domestic interest rates remain relatively low compared to previous years. This situation suggests that while inflation is a concern, the overall economic environment is not as dire as it has been in the past.

S&P is optimistic that entrenched economic reforms will lead to a sustained period of steady growth and fiscal consolidation. The agency anticipates that continued official financing will support Pakistan in meeting its external obligations and that the country will be able to roll over its commercial credit lines over the next 12 months. This expectation is based on the premise that the government will maintain its commitment to reform and fiscal discipline.

However, S&P also cautioned that if Pakistan's commitment to fiscal consolidation were to wane, leading to deterioration in current external or fiscal indicators contrary to expectations, the agency may consider lowering its ratings. Additionally, a surge in interest rates could signal domestic financing stress, which would also be a factor for potential downgrades.

Conversely, there are conditions under which S&P might raise Pakistan's rating in the future. The agency indicated that improvements in fiscal and external metrics could lead to an upgrade. Specifically, if fiscal deficits continue to narrow and government revenue rises while financing costs moderate and strong expenditure controls are maintained, a positive reassessment could occur. Furthermore, improvements in Pakistan’s external indicators, such as net external debt falling below 100 percent of current account receipts and gross external financing needs declining to less than 100 percent of the sum of current account receipts and usable reserves, could also support a rating increase.

In the context of these developments, it is worth noting that other financial institutions are also reevaluating their positions on Pakistan. For instance, last month, Barclays upgraded Pakistan’s dollar bonds to “overweight” after having lowered the rating the previous month, citing improved prospects in the oil market. This suggests a growing confidence among financial institutions regarding Pakistan's economic trajectory.

In April, Fitch Ratings, one of the leading global credit rating agencies, affirmed Pakistan’s long-term foreign currency issuer default rating (IDR) at “B-” with a “stable outlook.” However, Fitch highlighted the country’s significant exposure to global energy price shocks as a key risk, particularly if such shocks were to lead to a sharp decline in foreign exchange reserves. This underscores the ongoing vulnerabilities that Pakistan faces in the global economic environment.

Reflecting on the recent history of Pakistan’s credit ratings, it is noteworthy that S&P raised the country's sovereign credit rating to ‘B-’ from ‘CCC+’ last year, placing it on a “stable” outlook. The trajectory of these ratings illustrates the challenges and progress that Pakistan has encountered in its economic journey, characterized by efforts to stabilize the economy amidst external pressures and internal reforms.

In summary, S&P Global Ratings' decision to upgrade Pakistan's sovereign credit rating is a significant development that reflects the country's ongoing efforts to stabilize its economy and implement necessary reforms. While challenges remain, the upgrade signals a cautious optimism regarding Pakistan's economic future and its ability to meet external obligations. The implications of this rating change are far-reaching, as it may enhance investor confidence and open up new avenues for funding, which are essential for sustaining economic growth and development in Pakistan.