S&P raises Pakistan's sovereign rating to 'B-' as fiscal outlook improves

S&P Global Ratings upgrades Pakistan's sovereign credit rating, citing improved fiscal conditions, contained external liquidity risks, and reduced near-term default risk

S&P Global Ratings on Thursday raised Pakistan’s long-term sovereign credit ratings from “CCC+” to “B-” and its short-term ratings from “C” to “B” on the improving fiscal situation and contained external liquidity risks.

 

The outlook on the long-term rating is stable.

 

The rating agency, in a statement, said that official aid and recent improvements to its balance-of-payments position have boosted Pakistan's foreign exchange reserves, thus alleviating stress on external metrics.

 

Though debt-servicing costs remain hefty, the government's efforts to expand revenue and more benign inflation are hastening the pace of fiscal consolidation, S&P said.

 

Pakistan is now less reliant upon favorable macroeconomic and financial developments to meet its obligations. The country has replenished its foreign reserves over the last 12 months, and near-term default risks have abated, it added.

 

The stable outlook reflects the expectation that external support to Pakistan from key multilateral and bilateral partners, alongside the strengthening of its fiscal position, will persist over the next 12 months to meet its considerable debt obligations. 

 

The passage of the International Monetary Fund’s (IMF) Extended Fund Facility of $7 billion for Pakistan in September 2024 has been instrumental in restoring much-needed macroeconomic stability to the country. The IMF program, along with strong support from bilateral partners, has boosted foreign reserves considerably.

 

At the time of our downgrade of Pakistan to 'CCC+' in December 2022, foreign reserves had plummeted to a multi-year low of $6.7 billion. As of July 4, 2025, foreign reserves (including the central bank's gold holdings) have climbed to $20.5 billion, sufficient to cover the government's external principal and interest payments of $13.4 billion for fiscal 2026 (July 1, 2025, to June 30, 2026).

 

The rating agency said the economic growth is expected to resume due to easing inflation, but against a challenging backdrop of fractious politics. Pakistan's economy grew in fiscal 2025 for a second consecutive year, following a contraction in fiscal 2023. Its economy grew 2.7 per cent in fiscal 2025, driven by growth in the industry and services sectors.

 

Alleviated inflationary pressures, alongside IMF program reforms, will support growth, which S&P projects at 3.6 per cent in fiscal 2026.

 

The government's reform efforts may face volatile social and political resistance toward austerity and tax-enhancing measures, it added.