S&P Global upgrades Pakistan's credit rating to 'B'

Agency cites stronger institutional capacity, sustained implementation of IMF reforms for move

Standard & Poor's (S&P) Global on Tuesday upgraded Pakistan's long-term sovereign credit rating to 'B' from 'B-'. Pakistan was last assigned a 'B' rating between October 31, 2016 and February 3, 2019.

S&P Global also raised Pakistan's transfer and convertibility assessment to 'B' from 'B-'.

The upgrade reflects stronger institutional capacity, sustained implementation of reforms backed by the International Monetary Fund (IMF), improved fiscal performance and a significant rebuilding of foreign exchange reserves.

In an official release, S&P Global said it believed "Pakistan has strengthened institutional capacity, demonstrated through the implementation of critical reforms." This, it said, "has bolstered the country's foreign exchange reserves and alleviated pressure on external credit metrics."

The agency also said the government's efforts to expand its revenue base had accelerated fiscal consolidation, facilitating "a steady decline in its net general government debt-to-GDP ratio."

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"We therefore raised our long-term sovereign rating on Pakistan to 'B'. At the same time, we affirmed the 'B' short-term rating," the update read. The stable outlook, it added, "reflects our expectations that improved institutional settings will anchor economic reforms to bring about a sustained period of steady growth and fiscal consolidation."

The progress, it said, reflected the agency's view of Pakistan's improved political and institutional settings. It added that sustained official financing would help the country meet its external obligations and continue rolling over its commercial credit lines over the next 12 months.

However, the agency said it could lower its ratings if, "contrary to our expectations", Pakistan's external or fiscal indicators deteriorate due to a diminished commitment to fiscal consolidation. "This could erode financial support from key bilateral and multilateral partners, pressuring usable foreign exchange reserves," it added.

The agency also noted, "if interest rates surge again materially adding to the government's already-heavy debt servicing burden, we would view that as an indication of domestic financing stress," which may prompt it to lower Pakistan's ratings.

On the other hand, S&P Global stated that it may raise ratings if it believed that Pakistan's fiscal and external metrics "continue to strengthen structurally." This, according to the agency, "could happen if the country's fiscal deficits narrow such that the change in net general government debt is less than 3% of GDP on a sustained basis."

Simultaneously, it said, "government revenue would need to continue rising while financing costs moderate, with strong expenditure controls." This woud be accompanied by net general government debt falling below 60% of GDP, the agency said.

Further, it added that ratings may rise amid improvements in the country's external indicators resulting in narrow net external debt falling below 100% of current account receipts, along with gross external financing declining to less than 100% of the sum of current account receipts and usable reserves.

Meanwhile, sharing the rationale behind its decision, S&P Global cited Pakistan's institutional settings which it said had "strengthened over the last two years."

Terming the passage of the IMF's Extended Fund Facility in September 2024 as "critical in restoring macroeconomic stability to the country and replenishing foreign reserves," the agency noted that Pakistan had met most of the EFF program targets, allowing for timely disbursements from the institution. "A relatively stable political environment has been instrumental in this regard," S&P Global stated.

Along with the EFF program, the agency cited "strong support from bilateral partners," which it said had "considerably boosted foreign reserves." According to S&P Global, as of the end of June 2026, foreign reserves including the central bank's gold holdings had climbed to US$25.3 billion from a multi-year low of US$6.7 billion in December 2022. "This is more than sufficient to cover the government's external principal payments of US$16.4 billion over the next 12 months," it said.

Further, the agency noted that Pakistan had, in April 2026, "entered international capital markets for the first time in four years with a Eurobond placement of US$750 million and an inaugural panda bond issuance of Chinese yuan 1.75 billion, equivalent to about US$250 million."

S&P Global stated, "We believe multilateral and bilateral funding, coupled with continued access to commercial borrowing, will diversify Pakistan's external funding options," noting that the pace of the country's "fiscal consolidation had accelerated due to the government's commitment to structural reforms."

"Alongside expenditure controls, we forecast the general government deficit at 4% of GDP in fiscal 2027, down from close to 8% in the crisis years of fiscals 2022 and 2023," the agency said, adding that it projected that the change in the ratio of net debt general government debt to GDP would average 4.2% for fiscal 2026-2029.

It also noted that although the State Bank's tightened monetary conditions in April 2026 due to "rising inflationary pressures from the Middle East conflict," domestic interest rates remained "much lower than in previous years." Due to this, S&P Global said, "We forecast government interest payments to decline to an average of 38% of revenue over the next three years, from a peak of above 60% in fiscal 2024."

Prime Minister Shehbaz Sharif on Wednesday welcomed S&P Global's decision to upgrade Pakistan's sovereign credit rating, describing it as a significant milestone for the country's economy.

According to a statement from the Media Wing of the Prime Minister's Office, PM Shehbaz stated that the upgrade reflected the international community’s confidence in the government’s effective economic policies, fiscal discipline, structural reforms, and sustained efforts to stabilise the national economy.

The premier stated that the government had taken difficult but necessary economic decisions, the positive outcomes of which were now being acknowledged internationally. He also expressed confidence that the upgrade would boost the confidence of international investors, create new investment opportunities, and further accelerate Pakistan’s economic growth.

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Further, PM Shehbaz commended Foreign Minister Ishaq Dar, Finance Minister Muhammad Aurangzeb, the government’s economic team, and all relevant institutions for their contributions to the achievement. Reaffirming the government’s commitment to economic reforms, he stated that the reform agenda would continue with determination and resolve to provide Pakistan with a strong and sustainable economic foundation.

Last year, S&P's credit rating agency upgraded Pakistan's standing by one notch, to 'B-'. This was an improvement from the country's previous standing, though still two positions below investment grade.

The move came due to the implementation of reforms and the abating risks of sovereign default.

Meanwhile, Islamabad's long-term sovereign credit ratings were raised from 'CCC+' to 'B-' after a gap of two-and-a-half-years. S&P Global Ratings, one of the three largest credit rating firms, also assigned a stable outlook to Pakistan, improving its creditworthiness from “very high credit risk, vulnerable to non-payment” to “highly speculative.”