S&P upgrades Pakistan’s sovereign credit rating to ‘B’ on IMF-backed reforms

Credit ratings agency S&P Global has upgraded Pakistan’s long-term sovereign credit rating to “B” from “B-”, citing improved institutional stability and progress on reforms under the International Monetary Fund programme.

This marks an effective 8-year high, as the last 'B' category rating applied from Oct 2016 to Feb 2019.

The rating agency maintained a stable outlook, saying stronger political and institutional conditions, continued reforms and sustained official financing should support economic growth, fiscal consolidation and the country’s ability to meet external obligations.

“The stable outlook reflects our view of Pakistan’s improved political and institutional settings. Entrenched economic reforms will bring about a sustained period of steady growth and fiscal consolidation,” S&P said.

The agency said Pakistan was also expected to continue rolling over commercial credit lines during the next 12 months.

It also attributed the upgrade to the government’s efforts to broaden the tax base, improve revenue collection and accelerate fiscal consolidation, which it said should gradually reduce the country’s debt burden.

The rating agency said that IMF-backed reforms had helped restore macroeconomic stability, rebuild foreign exchange reserves and ease pressure on Pakistan’s fiscal and external accounts.

S&P projected economic growth of 3.5% in FY2026-27, supported by IMF programme reforms, although it expected some inflationary pressure from an energy shock linked to the Middle East conflict.

The agency said political uncertainty had eased since the February 2024 general elections, with the coalition government advancing reforms and meeting IMF targets without significant social pressure.

It said progress on reform implementation indicated an improved ability to control expenditure and expand the tax base.

However, S&P warned that Pakistan remained exposed to domestic and external security risks.

It said tensions with India and Afghanistan, including outbreaks of hostilities during the past year, could lead to miscalculations or accidental clashes and increase credit risks.