Fitch affirms Pakistan at B-, assigns RR4 as new sovereign criteria take effect

Fitch Ratings on Wednesday affirmed Pakistan’s long-term sovereign debt ratings at B- and assigned a Recovery Rating of RR4 after removing the country from Under Criteria Observation, citing the application of its revised sovereign rating methodology.

The action follows the implementation of Fitch’s new Sovereign Rating Criteria, effective September 2025, which for the first time incorporates recovery assumptions into sovereign debt ratings.

Fitch said Pakistan’s senior unsecured long-term debt, including instruments issued under The Pakistan Global Sukuk Programme Company Limited, has been equalised with the country’s Long-Term Foreign-Currency Issuer Default Rating. The agency said this reflects expectations of average recovery prospects in a default scenario, given Pakistan’s high general government debt, elevated interest payments relative to revenue, and the absence of factors warranting notching above or below the IDR.

Pakistan’s Long-Term Foreign-Currency IDR was upgraded to B- with a stable outlook on April 15, 2025, from CCC+.

Under Fitch’s rating scale, ‘B’ ratings indicate that material default risk remains, although current financial obligations are being met. The agency cautioned that debt-servicing capacity is vulnerable to adverse shifts in the economic or business environment. Fitch added that “investment grade” and “speculative grade” labels are market conventions and do not constitute investment advice.

On governance indicators, Fitch assigned Pakistan an ESG Relevance Score of 5 for political stability and rights, rule of law, institutional and regulatory quality, and control of corruption. The agency said the scores reflect the heavy weighting of World Bank Governance Indicators in its sovereign rating model, noting Pakistan’s placement at the 22nd percentile.

Fitch said downside risks to the rating include a failure to place government debt and debt-servicing metrics on a sustained downward trajectory and a renewed weakening of external liquidity, potentially stemming from delays in International Monetary Fund programme reviews or insufficiently tight policy settings.

On the upside, the agency said a rating upgrade could be driven by significant reductions in government debt and interest burdens, particularly through fiscal consolidation aligned with IMF commitments. Further easing of external financing risks, including improved access to foreign funding and a sustained build-up of foreign exchange reserves beyond Fitch’s forecasts, could also support positive rating action.