Pakistan has witnessed one of the sharpest declines in its sovereign default risk globally, becoming the second-best performing economy in terms of credit improvement, according to Credit Default Swap (CDS)-implied data reported by Bloomberg. The development marks a significant shift in investor sentiment toward Pakistan’s financial stability after years of economic turbulence.
Adviser to the finance minister, Khurram Schehzad, announced the achievement in a statement, noting that Pakistan’s risk of default has dropped consistently over the past 15 months, from June 2024 to September 2025. “As per the latest data posted by Bloomberg, Pakistan stands out globally as the 2nd most improved economy in terms of reduction in sovereign default risk, as measured by CDS-implied default probability globally,” he wrote in a post on X.
Credit Default Swaps serve as a global barometer of a country’s financial health. The cost of a CDS reflects how risky investors consider a country’s debt. A decline in CDS prices means lower perceived risk — an indication that global markets have growing faith in Pakistan’s capacity to manage and repay its debt obligations.
According to Schehzad, Pakistan ranks just behind Turkiye among emerging markets (EMs) that have experienced the most significant drop in default risk over the past year. He added that Pakistan is the only country in the EM sample to demonstrate consistent quarterly improvement, with the default probability falling by 2,200 basis points during the period.
“This marks the sharpest decline among major emerging markets, ahead of South Africa at 3 percent and El Salvador at 2 percent,” Schehzad said. In contrast, countries such as Argentina, Egypt, and Nigeria have seen their sovereign risks rise over the same period.
The finance adviser attributed the improvement to multiple factors, including disciplined economic management, the implementation of structural reforms, and the country’s adherence to the International Monetary Fund (IMF) program. “The sharp decline in Pakistan’s sovereign risk signals strengthening investor confidence, underpinned by macroeconomic stabilisation, structural reforms, timely debt servicing, and staying the course with the IMF,” he stated.
Pakistan’s improved economic outlook has also been reinforced by recent positive movements from global credit rating agencies, including S&P Global, Fitch Ratings, and Moody’s. These upgrades reflect recognition of Pakistan’s fiscal discipline and its efforts to maintain external debt obligations on schedule.
In his statement, Schehzad highlighted that Pakistan is “steadily rebuilding market credibility, standing out as one of the most improved sovereign credit stories in the emerging market universe.” The country’s economic recovery follows a period of severe financial distress, with dangerously low foreign reserves, a widening balance-of-payments gap, and fears of sovereign default in 2023.
The crisis was ultimately averted through an emergency financing arrangement with the IMF, along with crucial financial assistance from friendly countries such as China, Saudi Arabia, and the United Arab Emirates. These measures stabilized Pakistan’s external position and laid the groundwork for sustained recovery.
Since then, Pakistan has been implementing IMF-endorsed reforms focusing on fiscal consolidation, tax broadening, and currency market discipline. The ongoing improvements in sovereign credit indicators suggest that these efforts are beginning to yield tangible results, signaling renewed investor trust and financial resilience.
As Pakistan continues on the path of economic stability, analysts expect further improvements in its sovereign risk metrics if reform momentum and fiscal discipline are maintained.
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