S&P upgrades Pakistann rating to 'B', assigns stable outlook

July 22, 2026 (MLN): S&P Global Ratings on Wednesday upgraded Pakistan’s long-term sovereign credit rating to ‘B’ from ‘B-’, citing stronger institutional capacity, sustained implementation of International Monetary Fund (IMF)-backed reforms, improved fiscal performance, and a significant rebuilding of foreign exchange reserves.

The ratings agency assigned a stable outlook, saying it expects ongoing reforms to support steady economic growth, continued fiscal consolidation, and the country's ability to meet its external financing needs. S&P also affirmed Pakistan’s ‘B’ short-term sovereign credit rating and raised its transfer and convertibility assessment to ‘B’ from ‘B-’.

According to S&P, the stable outlook shows Pakistan’s improved political and institutional environment, with entrenched economic reforms expected to underpin sustainable growth and fiscal discipline over the coming years.

The agency said the upgrade was driven by improved institutional stability, which enabled Pakistan to implement key reforms under the IMF’s $7 billion Extended Fund Facility (EFF).

It noted that Pakistan has met most program targets since the facility was approved in September 2024, allowing timely IMF disbursements, accelerating fiscal consolidation, rebuilding external buffers, and strengthening investor confidence.

S&P highlighted that Pakistan’s foreign exchange reserves, including the State Bank of Pakistan’s gold holdings, rose to $25.3 billion at the end of June 2026 from $6.7bn in December 2022.

The agency said the reserves are sufficient to cover the government’s $16.4bn in external principal repayments due over the next 12 months.

The ratings agency also pointed to Pakistan’s return to international capital markets in April 2026 through a $750m Eurobond and its inaugural CNY1.75bn panda bond, saying the issuances diversified the country’s external funding sources alongside multilateral and bilateral financing.

On the fiscal front, S&P said efforts to broaden the tax base and strengthen revenue collection have accelerated fiscal consolidation. It noted tax revenues increased by 3.2 percentage points of GDP during the year ended June 2025, with strong momentum continuing in fiscal year 2026.

The agency forecast Pakistan’s general government fiscal deficit at 4% of GDP in fiscal 2027, compared with nearly 8% during the economic crisis of fiscal years 2022 and 2023.

It also expects the net general government debt-to-GDP ratio to continue declining gradually, although remaining above 60% during the forecast period.

S&P projected government interest payments would decline to an average of 38% of revenue over the next three years from more than 60% in fiscal 2024, showing lower domestic borrowing costs, while noting that Pakistan’s debt-servicing burden remains among the highest among rated sovereigns.

The agency estimated Pakistan’s economy expanded 3.6% in fiscal 2026, marking a third consecutive year of growth following the contraction recorded in fiscal 2023.

It expects GDP growth of 3.5% in fiscal 2027, supported by continued IMF-backed reforms despite temporary inflationary pressures stemming from higher global energy prices linked to the Middle East conflict.

S&P said consumer inflation averaged 7.2% in fiscal 2026, compared with 4.5% a year earlier but well below 23.4% recorded in fiscal 2024. Inflation is expected to ease further to around 6.5% by fiscal 2029.

The agency also highlighted continued support from bilateral partners, including China, Saudi Arabia and Kuwait, alongside IMF financing, as a key factor in stabilizing Pakistan’s external position.

Bilateral central bank deposits and swaps totaled $16.8bn at the end of fiscal 2026, while renewed multilateral financing, including the World Bank’s $20bn Country Partnership Framework, further strengthened the country’s external financing outlook.

S&P expects Pakistan’s current account deficit to remain modest, averaging 0.9% of GDP between fiscal years 2027 and 2029.

Despite the upgrade, the ratings agency cautioned that Pakistan remains exposed to external financing pressures due to large debt maturities and continued reliance on bilateral funding rollovers.

It said the sovereign rating could come under pressure if fiscal or external indicators weaken because of reduced commitment to reforms, diminished bilateral or multilateral support, or a sharp rise in domestic interest rates.

Conversely, further improvements in fiscal and external metrics, including lower government debt, narrower fiscal deficits and stronger external debt indicators, could support future rating upgrades.

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