Fitch rates Pakistan's proposed Eurobond at 'B-'

September 01, 2026 (MLN):  Fitch Ratings has assigned a 'B-' rating to Pakistan's proposed US dollar-denominated bond, along with a Recovery Rating of 'RR4', reflecting average recovery prospects for investors in case of default.

The proceeds from the proposed issuance are earmarked for general budgetary and sovereign financing needs, the agency said.

The bond rating is aligned with Pakistan's Long-Term Foreign-Currency Issuer Default Rating (IDR), which Fitch affirmed at 'B-' with a stable outlook on April 13, 2026.

Fitch noted the rating will remain sensitive to any movement in the sovereign IDR, with the country's external and fiscal positions among the key drivers of future rating decisions.

On the downside, the agency warned that renewed pressure on Pakistan's external liquidity could trigger a downgrade, citing risks from persistently elevated oil prices or a sharp drop in remittance inflows.

A slowdown or reversal in fiscal consolidation, if it leads to a marked rise in government debt and weaker debt-servicing indicators, could similarly weigh on the rating.

On the upside, Fitch said a significant easing of external financing risks including improved access to external funding and a sustained build-up in foreign-currency reserves beyond its current projections could support a positive rating action.

A substantial reduction in government debt and debt-servicing burdens would also be supportive, particularly if fiscal consolidation stays on track with IMF program commitments and delivers structural gains in tax revenue.

The agency further flagged governance-related ESG factors as key drivers for the bond rating.

Pakistan carries an ESG Relevance Score of '5' for political stability and rights, rule of law, institutional and regulatory quality, and control of corruption scores that stem from the heavy weighting Fitch's Sovereign Rating Model places on World Bank Governance Indicators.

On these indicators, Pakistan ranks in the 18th percentile.

The proposed issuance comes as Islamabad continues to lean on a mix of multilateral support, bilateral financing and international capital markets to meet its external financing needs and shore up its fiscal and foreign-exchange position.

The 'B-' rating places the bond in the highly speculative category, showcasing persistent risks around the country's external liquidity, debt-servicing obligations and fiscal consolidation drive.

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