Rating agencies back Pakistan's recovery story ahead of international debt push

Three years ago, Pakistan teetered on the edge of economic collapse. Credit rating agencies delivered a devastating verdict, with S&P downgrading the country to 'CCC+' in December 2022 as foreign reserves crashed to a multi-year low of just $6.7 billion. The message from global markets was clear: Pakistan had become uninvestable.

The eurobond market laid bare the severity of the crisis. Pakistan's dollar bond was trading at fire-sale prices as investors scrambled to exit what many had written off as certain default territory. The country appeared destined to join the growing list of emerging market casualties: Sri Lanka, Ghana, and Zambia.

The crisis was years in the making, but 2022 delivered the perfect storm. Russia's invasion of Ukraine sent oil prices soaring past $130 per barrel, devastating floods submerged one-third of the country, and the dramatic ousting of Prime Minister Imran Khan in April 2022 plunged domestic politics into chaos. The rupee collapsed, inflation exploded to nearly 30%, and the government's financing options evaporated as foreign reserves dwindled to cover barely one month of imports.

Yet Pakistan's story has taken a remarkable turn. The economy that seemed beyond salvation is not only surviving but showing genuine signs of recovery. The panic that gripped markets in 2022 has given way to cautious optimism and this shift is being validated by the very rating agencies that once wrote Pakistan off.