S&P Upgrades Pakistan Rating to B as Economic Stability Improves

S&P Global Ratings upgraded Pakistan’s long-term sovereign credit rating to “B” from “B-” on Wednesday, delivering a fresh confidence signal for the country’s economy as Islamabad works to move beyond repeated balance-of-payments stress. The agency also assigned a stable outlook, indicating that it expects Pakistan’s reform and financing position to remain broadly manageable in the near term.

The rating action is significant because sovereign ratings influence how international investors, lenders and financial markets assess a country’s repayment capacity. A stronger rating can help improve sentiment toward Pakistan’s bonds, support future borrowing prospects and reinforce the government’s claim that macroeconomic stabilisation is beginning to show results.

S&P also affirmed Pakistan’s short-term sovereign credit rating at “B” and raised the country’s transfer and convertibility assessment to “B” from “B-”. The move reflects the agency’s view that external buffers have improved and that the policy environment has become more consistent under the current reform framework.

In its assessment, S&P said the upgrade was driven by “improved institutional stability” and reforms that had “rebuilt external buffers”. The agency linked the improvement to Pakistan’s ability to implement key commitments under the International Monetary Fund programme, which has helped unlock timely disbursements and restore a measure of investor confidence.

A central part of the rating agency’s reasoning was the $7 billion IMF Extended Fund Facility approved in September 2024. S&P said the programme had played a critical role in stabilising the economy, supporting reform implementation and helping replenish foreign exchange reserves after the country faced severe financing pressure in previous years.

The agency noted that Pakistan’s reserves, including the State Bank’s gold holdings, had climbed to $25.3 billion by the end of last month from a multi-year low of $6.7 billion in December 2022. It said that level was enough to cover the government’s external principal payments of $16.4 billion over the next 12 months, reducing immediate repayment concerns.

The upgrade also reflects expectations of gradual fiscal repair. S&P projected Pakistan’s general government deficit at four per cent of GDP for FY2027, a marked decline from levels close to eight per cent during the crisis years of FY2022 and FY2023, while noting that continued official financing and commercial rollovers would remain important for meeting external obligations.

The decision comes after other signs of cautious market improvement, including Barclays’ recent move to upgrade Pakistan’s dollar bonds to overweight and Fitch’s earlier decision to keep Pakistan at “B-” with a stable outlook. However, risks remain, especially from global energy prices, regional conflict, interest-rate pressure and any weakening of the government’s reform commitment.

For Pakistan, the S&P upgrade may strengthen the government’s economic narrative at a politically sensitive moment marked by high fuel costs, tight budgets and public pressure for relief. The next test will be whether authorities can sustain tax reforms, spending controls, reserve growth and investor confidence long enough to turn stabilisation into durable growth.