S&P Global Ratings has upgraded the long-term sovereign credit rating of Pakistan to B from its previous level of B minus, reflecting an improving external liquidity profile, strengthening institutional capability, and steady macroeconomic stabilization. The international rating agency simultaneously assigned a stable outlook on the long-term rating while affirming the short-term credit rating at B. Furthermore, the agency raised the country’s transfer and convertibility assessment to B from B minus, signaling reduced restrictions on capital mobility and enhanced confidence in the central bank’s ability to facilitate cross-border currency exchanges and debt service payments.
The rating upgrade is primarily predicated on Pakistan’s sustained momentum in executing key structural reforms tied to its seven billion dollar Extended Fund Facility with the International Monetary Fund, approved in late 2024. S&P Global noted that effective adherence to program benchmarks has enabled timely credit disbursements, accelerated fiscal consolidation, and restored foreign investor confidence. This policy consistency has allowed the country to rebuild its foreign exchange reserves, which expanded to twenty five point three billion dollars by the end of June 2026, up from a multi-year low of six point seven billion dollars recorded in late 2022. The current reserve buffer is assessed as more than sufficient to cover the government’s sixteen point four billion dollars in external principal repayments falling due over the next twelve months.
A cornerstone of the rating elevation lies in fiscal reform, where aggressive revenue measures expanded tax collection by three point two percentage points of GDP during fiscal year 2025, with that momentum persisting through fiscal year 2026. The ratings agency projects the general government fiscal deficit to settle at four percent of GDP in fiscal year 2027, representing a sharp reduction from the peak deficit of nearly eight percent observed during the peak economic stress of fiscal years 2022 and 2023. Additionally, government interest burdens are expected to moderate to an average of thirty eight percent of total revenues over the next three years, down from over sixty percent in fiscal year 2024, aided by reduced reliance on costly domestic borrowing.
On the macroeconomic front, S&P Global estimated real GDP growth at three point six percent for fiscal year 2026, marking three consecutive years of recovery following the economic contraction in fiscal year 2023. Growth is forecasted to hold at three point five percent in fiscal year 2027, bolstered by structural reforms despite lingering domestic inflationary pressures caused by global energy price volatility linked to geopolitical tensions in the Middle East. Average consumer inflation slowed to seven point two percent in fiscal year 2026, down sharply from twenty three point four percent in fiscal year 2024, with projections pointing toward a further reduction to six point five percent by fiscal year 2029.
The sovereign’s external position has also benefited from diversified financing channels, including a return to global debt markets through a seven hundred and fifty million dollar Eurobond issuance and an inaugural panda bond placement in early 2026. Continued bilateral support remains crucial, with central bank deposits and swap agreements from key allies including China, Saudi Arabia, and Kuwait standing at sixteen point eight billion dollars at the end of fiscal year 2026. S&P Global expects the country’s current account deficit to stay contained at an average of zero point nine percent of GDP through fiscal year 2029, though it cautioned that persistent vulnerabilities remain due to heavy debt servicing requirements and reliance on bilateral roll-overs.
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