S&P Global on Thursday raised Pakistan’s sovereign credit rating from ‘CCC+’ to ‘B-‘ and upgraded its outlook to ‘stable,’ noting the country’s finances and reserves had stabilized under the ongoing $7 billion Extended Fund Facility with the International Monetary Fund (IMF).
“The stable outlook reflects our expectations that continued economic recovery and government efforts to enhance revenue will stabilize fiscal and debt metrics,” read the statement issued by the credit ratings agency. “We also expect that sustained official financing will support Pakistan in meeting its external obligations, and that the country will continue to roll over its commercial credit lines over the next 12 months,” it added.
The ratings agency noted it could lower its ratings if Pakistan’s external or fiscal indicators deteriorated well beyond their current levels. “Downward pressure would emerge if financial support from key bilateral and multilateral partners quickly erodes, or usable foreign exchange reserves fall substantially to levels indicating difficulties in servicing its external debt obligations,” it said, adding another surge in interest rates could also add to the government’s already-heavy debt servicing burden.
However, it added, the ratings could increase if institutional and political settings in Pakistan improved, bringing about economic reforms that yield a sustained period of steady growth and fiscal consolidation.
S&P said the upgrade reflected its view that Pakistan was now less reliant upon favorable macroeconomic and financial developments to meet its obligations and had replenished its foreign reserves over the last 12 months.
The ratings agency also noted it expected political uncertainty to remain high owing to a fractious political environment. “We believe a stable political environment in Pakistan is an important precondition to further improvements in the government’s creditworthiness,” it said.
In a statement, Prime Minister Shehbaz Sharif voiced satisfaction over the improvement in Pakistan’s credit rating, saying it reflects the country’s economic stabilization. He said this upgrade would enhance Pakistan’s access to international capital markets and reduce pressure on external debt repayments.
Sharif said Pakistan’s macroeconomic indicators are steadily improving, and global financial institutions and credit rating agencies are acknowledging this positive momentum. Highlighting the broader impact of the rating improvement, the prime minister said it would help restore investor confidence in the Pakistani economy. He also praised the government’s economic policies, saying they are now receiving international recognition and commended the economic team for their commendable work.