S&P Global Ratings on Wednesday upgraded Pakistan’s long-term sovereign credit rating to ‘B’ from ‘B-’, citing stronger institutional capacity, sustained implementation of International Monetary Fund (IMF)-backed reforms, improved fiscal performance and a significant rebuilding of foreign exchange reserves.
The ratings agency assigned a ‘stable’ outlook, saying it expects reforms to support steady economic growth and continued fiscal consolidation while helping Pakistan meet its external financing needs.
S&P also affirmed Pakistan’s ‘B’ short-term sovereign credit rating and raised its transfer and convertibility assessment to ‘B’ from ‘B-’.
“The stable outlook reflects our view of Pakistan’s improved political and institutional settings,” S&P said, adding that entrenched economic reforms are expected to underpin sustained growth and fiscal discipline over the coming years.
IMF reforms underpin upgrade
S&P said the upgrade was driven by improved institutional stability that enabled Pakistan to implement key reforms under the IMF’s $7 billion Extended Fund Facility (EFF), helping accelerate fiscal consolidation and rebuild external buffers.
The agency said Pakistan has met most EFF program targets since the facility was approved in September 2024, allowing timely IMF disbursements and strengthening investor confidence.
Foreign exchange reserves, including the State Bank of Pakistan’s gold holdings, climbed to $25.3 billion at the end of June 2026, up sharply from $6.7 billion in December 2022, providing more than enough coverage for the government’s $16.4 billion in external principal repayments due over the next 12 months, S&P said.
The agency also noted Pakistan’s return to international capital markets in April 2026 through a $750 million Eurobond and its inaugural CNY1.75 billion panda bond, which it said diversified the country’s external funding sources alongside multilateral and bilateral financing.
Fiscal consolidation gains
S&P said Pakistan’s efforts to broaden the tax base and strengthen revenue collection have accelerated fiscal consolidation. The agency noted tax revenues increased by 3.2% of GDP during the year ended June 2025, with strong momentum continuing in fiscal year 2026.
It forecast the general government fiscal deficit at 4% of GDP in fiscal 2027, compared with nearly 8% during the economic crisis of fiscal years 2022 and 2023.
S&P expects Pakistan’s net general government debt-to-GDP ratio to continue declining gradually, although it is likely to remain above 60% of GDP during the forecast period.
The ratings agency also projected government interest payments would fall to an average of 38% of revenue over the next three years from more than 60% in fiscal 2024, reflecting lower domestic borrowing costs, although it said Pakistan’s debt servicing burden remains among the highest of rated sovereigns.
Growth outlook remains positive
S&P said Pakistan’s economy expanded 3.6% in fiscal 2026, marking a third consecutive year of growth following the contraction recorded in fiscal 2023.
The agency forecasts GDP growth of 3.5% in fiscal 2027, supported by continued IMF-backed reforms despite temporary inflationary pressures arising from higher global energy prices linked to the Middle East conflict. Consumer inflation averaged 7.2% in fiscal 2026, up from 4.5% a year earlier, but well below the 23.4% recorded in fiscal 2024, with inflation expected to ease to around 6.5% by fiscal 2029.
External financing support
S&P said continued support from bilateral partners, including China, Saudi Arabia and Kuwait, alongside IMF financing, has been instrumental in stabilizing Pakistan’s external position.
The agency noted bilateral central bank deposits and swaps totaled $16.8 billion by the end of fiscal 2026, while renewed multilateral financing, including the World Bank’s $20 billion Country Partnership Framework, has further strengthened external financing prospects. It expects Pakistan’s current account deficit to remain modest, averaging 0.9% of GDP between fiscal years 2027 and 2029.
Risks remain
Despite the upgrade, S&P said Pakistan remains exposed to external financing pressures because of large debt maturities and continued reliance on bilateral funding rollovers. The agency warned it could downgrade the sovereign if fiscal or external indicators deteriorate because of weaker commitment to reforms, reduced support from bilateral or multilateral partners, or a sharp rise in domestic interest rates that worsens debt servicing costs.
Conversely, S&P said further upgrades could follow if Pakistan continues strengthening its fiscal and external metrics, including reducing net government debt below 60% of GDP, narrowing fiscal deficits and further improving external debt indicators.