Pakistan upgraded to ’B-’ by S&P on improved external liquidity

Investing.com -- S&P Global Ratings raised Pakistan’s long-term sovereign credit rating to ’B-’ from ’CCC+’ on Thursday, citing contained external liquidity risks and improving fiscal conditions.

The ratings agency also upgraded the short-term ratings to ’B’ from ’C’ and revised the transfer and convertibility assessment to ’B-’ from ’CCC+’. The outlook on the long-term rating is stable.

The upgrade reflects S&P’s view that Pakistan is now less reliant on favorable economic conditions to meet its obligations. The country has rebuilt its foreign reserves over the past 12 months, reducing near-term default risks.

The International Monetary Fund’s $7 billion Extended Fund Facility program approved in September 2024 has been key in restoring macroeconomic stability. This program, along with support from bilateral partners, has significantly boosted foreign reserves to $20.5 billion as of July 4, 2025, up from a multi-year low of $6.7 billion in December 2022.

Pakistan’s current account posted a surplus of 0.5% of GDP in fiscal 2025, its first surplus in 14 years, driven by record-high remittances totaling $39 billion (9.5% of GDP).

IMF program-related reforms have increased government tax revenues by about 3% of GDP in the last 12 months. Combined with spending controls, S&P forecasts the general government deficit to decrease to 5.1% of GDP in fiscal 2026 from 7.9% in fiscal 2022.

Inflation has subsided from a peak of 29% in fiscal 2023, with S&P projecting Consumer Price Index growth to average 6.5% over the next two to three years. This should allow for easier monetary conditions and lower domestic interest rates, reducing government interest payments to an average of 41% of revenue over the next three years from above 60% in fiscal 2024.

Pakistan’s economy grew 2.7% in fiscal 2025, with S&P projecting growth to improve to 3.6% in the current fiscal year as reform measures and declining prices boost economic activity.

The stable outlook reflects expectations that continued economic recovery and government efforts to enhance revenue will stabilize fiscal and debt metrics, while sustained official financing will support Pakistan in meeting its external obligations.

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