Pakistan could secure further sovereign credit rating upgrades if it maintains its fiscal deficit below 3% of gross domestic product, reduces government debt to below 60% of GDP and keeps narrow external debt below 100% of current account receipts, according to Yee Farn Phua, Director of Sovereign Credit Ratings at S&P Global Ratings. His comments came after S&P raised Pakistan’s long-term sovereign credit rating to B from B- in July, with a stable outlook.
The July upgrade took Pakistan’s sovereign rating to its highest level since 2016. Phua attributed the improvement largely to greater political stability, which he said had provided the government with room to implement reforms supported by the International Monetary Fund. Improvements in fiscal and external accounts, combined with progress on reforms, have contributed to a stronger assessment of Pakistan’s credit position.
Pakistan’s fiscal performance has also improved significantly. The country’s fiscal deficit fell to Rs3.31 trillion, equivalent to 2.6% of GDP, during fiscal year 2025-26. This was reported as the lowest fiscal deficit level in more than two decades. At the same time, the government recorded a primary surplus of Rs3.63 trillion, reflecting a stronger fiscal position compared with previous years.
Phua said the improvement in political conditions was an important factor behind the latest rating decision. According to the S&P executive, greater political stability supported the implementation of IMF-backed reforms, which helped stabilise Pakistan’s fiscal position and contributed to improvements in institutional capacity. The assessment suggests that maintaining this stability will remain important for preserving the gains made in the country’s credit profile.
Pakistan’s external position has also benefited from renewed support from bilateral partners. Phua pointed to renewed swap arrangements and fresh deposits with the State Bank of Pakistan as factors supporting the country’s external accounts. Improved tax collection and tighter expenditure management have also contributed to better fiscal outcomes.
The latest S&P assessment comes as Pakistan continues efforts to strengthen macroeconomic stability and improve its medium-term economic outlook. The government is also seeking to expand trade and investment cooperation with bilateral partners, with sectors such as mining, energy, information technology and manufacturing identified as areas with potential to support a broader export-led growth strategy.
Pakistan’s longstanding economic relationships with countries including Türkiye and China are also increasingly being linked with commercial and investment opportunities. Greater cooperation in areas such as trade, investment and industrial development could contribute to economic growth if these efforts translate into higher exports, increased investment and stronger productive capacity.
However, further improvement in Pakistan’s sovereign rating will require sustained progress across fiscal, debt and institutional indicators. S&P has indicated that keeping the fiscal deficit below 3% of GDP would be an important condition for additional improvement. Reducing government debt below 60% of GDP and maintaining narrow external debt below 100% of current account receipts would also support the case for future upgrades.
Despite the recent improvement, Pakistan remains several levels below investment-grade status. Phua cautioned that investment grade is still multiple notches away. He noted that economies in the region with investment-grade ratings generally have stronger institutions and maintain annual economic growth of around 4% to 5% or higher over a sustained period.
For Pakistan, this means that the recent improvement in fiscal and external indicators will need to be maintained over several years rather than treated as a short-term development. Continued fiscal discipline, stronger institutions, stable economic policies and higher sustainable growth would be important for further strengthening the country’s sovereign credit profile.
The latest rating outlook therefore places continued emphasis on maintaining the progress achieved under the current economic reform programme. Pakistan’s B rating represents an improvement from the previous B- level, but further movement up the sovereign credit scale will depend on whether the country can sustain fiscal improvements, reduce its debt burden, strengthen external resilience and achieve stronger long-term economic growth.
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