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.

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."

Also Read: Pakistan seeks US support for better access to global capital markets

"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."

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

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.

Read More: Two contrasting narratives of Pakistan's economy

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.”