S&P Upgrades Pakistan’s Sovereign Credit Rating to B Successfully

ISLAMABAD: (Finance Reporter) – S&P Global Ratings has upgraded Pakistan’s long-term sovereign credit rating from ‘B-‘ to ‘B’ while retaining a stable outlook, reflecting growing confidence in the country’s economic direction and reform agenda.

In its latest assessment, the international ratings agency said Pakistan has made notable progress in strengthening its institutional framework over the past two years. It credited the government’s implementation of reforms under the International Monetary Fund (IMF) programme with improving fiscal discipline, rebuilding foreign exchange reserves and easing external financing pressures.

S&P stated that the stable outlook is based on expectations that Pakistan will continue implementing economic reforms while benefiting from sustained financial support from international partners. These factors are expected to help the country comfortably meet its external financing obligations and maintain access to global capital markets over the next year.

The agency also highlighted the government’s tax reforms, saying broader revenue collection has accelerated fiscal consolidation and placed public debt on a gradual downward trend. Stronger tax receipts, combined with continued foreign inflows, have enhanced Pakistan’s ability to absorb external economic shocks.

According to the report, the IMF’s $7 billion Extended Fund Facility, approved in September 2024, has been instrumental in restoring macroeconomic stability. Pakistan has largely met programme targets, allowing timely IMF disbursements and contributing to a significant increase in foreign exchange reserves.

S&P noted that Pakistan’s total foreign exchange reserves, including the State Bank’s gold holdings, climbed to $25.3 billion by the end of June 2026, a sharp rise from $6.7 billion in December 2022. The agency said this level of reserves provides sufficient coverage for the country’s external debt repayments over the coming year.

The report also acknowledged Pakistan’s return to international debt markets in April 2026 through a $750 million Eurobond and its first-ever Chinese yuan-denominated Panda Bond, describing these issuances as important steps toward diversifying external financing sources.

Looking ahead, S&P expects Pakistan’s economy to expand by 3.5% in fiscal year 2027, supported by ongoing reforms despite inflationary pressures linked to higher global energy prices amid tensions in the Middle East.

The agency further observed that political stability following the 2024 general elections has strengthened the government’s ability to pursue structural reforms, widen the tax net and maintain spending discipline, contributing to improved investor confidence.

However, S&P cautioned that Pakistan continues to face domestic and regional security challenges, while high debt-servicing costs and sizeable external financing needs remain key constraints. It stressed that sustained fiscal discipline and continued structural reforms will be essential for securing future rating upgrades.

The ratings agency added that Pakistan’s credit rating could improve further if fiscal deficits continue to narrow, public debt falls below 60 percent of GDP on a sustained basis, tax revenues increase further and external debt indicators strengthen. Conversely, any weakening in the reform agenda or deterioration in fiscal and external indicators could put downward pressure on the rating.