S&P upgrades Pakistan's sovereign rating to B on stronger economy, IMF reforms

LAHORE: S&P Global Ratings on Wednesday upgraded Pakistan's long-term sovereign credit rating to B from B-. The upgrade reflects stronger external finances, improved institutional effectiveness, and ongoing macroeconomic stabilization, supported by an International Monetary Fund (IMF) reform program.

The agency assigned a stable outlook, affirmed Pakistan's short-term sovereign rating at B, and upgraded its transfer and convertibility assessment to B from B-, reflecting lower risks related to foreign exchange availability and cross-border capital transfers.

"The stable outlook reflects our view of Pakistan's improved political and institutional settings. Entrenched economic reforms will bring about a sustained period of steady growth and fiscal consolidation," S&P said in a statement.

The agency said it expects continued official financing to help Pakistan meet its external obligations while maintaining access to commercial credit lines over the next 12 months.

Waqas Ghani, head of research at JS Global Capital, commenting on the upgrade, said the move reflects growing confidence in Pakistan's macroeconomic stability.

"The improved rating should help the government access global capital markets on more favorable terms, reducing debt-servicing costs and creating additional fiscal space for development spending," he told Pakistan Television Digital.

Stable political environment

S&P said Pakistan's institutional framework has strengthened over the past two years, with the IMF's $7 billion Extended Fund Facility, approved in September 2024, playing a key role in restoring macroeconomic stability and rebuilding foreign exchange reserves.

The agency noted that Pakistan has met most of the program's targets, enabling timely IMF disbursements. It also credited a relatively stable political environment with supporting reform implementation.

According to S&P, Pakistan's foreign reserves, including the State Bank of Pakistan's gold holdings, rose to $25.3 billion at the end of June 2026 from $6.7 billion in December 2022, providing sufficient coverage for the government's $16.4 billion in external principal repayments due over the next year.

The ratings agency also highlighted Pakistan's return to international capital markets in April 2026 after a four-year gap, when the country raised $750 million through a Eurobond and issued its inaugural 1.75 billion Chinese yuan (about $250 million) Panda bond.

It said multilateral and bilateral financing, along with continued access to commercial borrowing, has diversified Pakistan's external funding sources.

Continued progress on structural reforms

S&P attributed the rating upgrade to higher tax revenues, fiscal consolidation, stronger foreign exchange reserves and continued progress on structural reforms under the IMF program.

The agency forecasts Pakistan's economy will grow 3.5% in fiscal year 2027, supported by improving macroeconomic stability.

It also said political uncertainty has eased since the February 2024 general election, allowing the coalition government to maintain reform momentum and meet key IMF benchmarks.

Risks remain

However, S&P cautioned that Pakistan's credit profile remains vulnerable to geopolitical risks, including tensions with India and Afghanistan, as well as potential increases in global energy prices.

The upgrade comes as Pakistan plans to raise about $4.5 billion from international debt markets during the current fiscal year through Eurobonds, Panda bonds and its first rupee-linked international bond.

The latest development comes after S&P upgraded Pakistan's sovereign rating from CCC+ to B- last year. Earlier this year, Fitch Ratings confirmed Pakistan's B- rating with a stable outlook. Additionally, last month, Barclays upgraded Pakistan's dollar-denominated bonds, attributing this change to improving macroeconomic fundamentals and stronger market conditions.

The latest upgrade is expected to strengthen investor confidence and support Pakistan's return to international capital markets as the government pursues fiscal consolidation and structural reforms.