Credit rating upgrade

For the first time since 2016, Pakistan has regained a 'B' sovereign credit rating from S&P Global Ratings. The upgrade from our previous 'B-' rating is proof of growing international confidence in our economy. A major factor behind the upgrade has been increased foreign reserves, which had dwindled to $6.7 billion in December 2022 but now stand at $25.3 billion. Tax revenue as a percentage of GDP is also up - though not as much as local and foreign experts would have liked. Meanwhile, the fiscal deficit situation continues to improve, coming down to 4% from almost 8% during FY2022-23.

S&P Global noted that "improved institutional stability" and the successful implementation of IMF-backed reforms have contributed to the improving perception of Pakistan's economy, as have the recent Eurobond and Panda bond issuances. The upgrade reflects the success of painful but necessary economic policy decisions taken over the past few years. It should also lower borrowing costs, boost investor confidence and open doors to new financing opportunities.

However, it is also worth clarifying that a 'B' rating is not particularly high on the scale. In fact, it is still below 'investment grade' - meaning S&P still considers Pakistan to be relatively high-risk for investors - and is only the 15th-highest of the 20 ratings on the scale. For comparison, India is currently rated 'BBB' - which is considered an "investment grade" rating - and Bangladesh is rated 'B+' despite its own economic and political upheaval in recent years. With this in mind, the rating upgrade is certainly notable, but not a "significant milestone" as Prime Minister Shehbaz Sharif has suggested.

S&P has also warned that high debt-servicing costs, security risks and regional tensions continue to constrain the country's credit profile, and any weakening of commitment to fiscal consolidation, a resurgence of interest rates or deterioration in external indicators could trigger a downgrade. This is why we need sustainable growth and genuine economic resilience to navigate the path ahead.