Barclays upgrades Pakistan dollar bonds to overweight, citing stronger external outlook

Barclays Bank Plc has upgraded Pakistan’s sovereign dollar bonds to overweight from its previous stance in May, arguing that the country’s external position has proven more resilient than previously anticipated and now supports a more constructive investment outlook.

The upgrade, reported by Bloomberg and shared on Wednesday by Finance Minister’s adviser Khurram Shehzad, comes as Pakistan continues to post improving macroeconomic indicators, including a stronger fiscal position, relatively stable foreign exchange reserves and moderate inflation and growth trends.

In a research note led by analyst Avanti Save, Barclays said the durability of Pakistan’s external accounts was a key factor behind the revision in its view.

“The resilience of Pakistan’s external position cannot be ignored and it underpins the more optimistic view,” the analysts wrote, according to Bloomberg.

The bank also pointed to the continued availability of multilateral and bilateral financing support, noting that Pakistan’s strategic importance to Central Asia and the Middle East remains an important consideration for international partners and creditors.

“Multilateral and bilateral financing backstops are intact as the country’s geopolitical position remains critical to Central Asia and the Middle East,” the report said, describing the factor as a potential tailwind for the country.

Reflecting its improved outlook, Barclays recommended investors purchase Pakistan’s sovereign dollar bonds maturing in 2031, 2036 and 2051, alongside the 2031 dollar-denominated bond issued by the Water and Power Development Authority (WAPDA). The bank simultaneously recommended selling five-year Pakistan credit default swaps.

According to the report, Pakistan’s economy is currently benefiting from an improved fiscal position, stronger external buffers, relatively steady foreign exchange reserves and a more balanced growth and inflation environment, factors that have helped strengthen investor sentiment toward the country's debt instruments.

Barclays further noted that although sovereign credit rating upgrades have been slower to emerge, major rating agencies could revisit Pakistan’s ratings during the second half of 2026 and potentially conclude those reviews positively.

The upgrade marks a notable shift in sentiment from the British banking giant, which had lowered its view on Pakistan’s dollar bonds in May. The latest assessment suggests the bank now sees greater value in Pakistani sovereign debt as concerns over external financing and balance-of-payments pressures continue to ease.

Under Barclays’ rating framework, an overweight recommendation indicates an expectation that an asset will outperform the average total return generated by comparable securities within its coverage universe over the next 12 months.