KARACGI: S&P Global Ratings on Wednesday raised Pakistan’s long-term sovereign credit rating to ‘B’ from ‘B-‘, citing strengthened institutional capacity and progress on critical economic reforms that have bolstered foreign exchange reserves and eased pressure on external credit metrics.
The outlook is stable, the ratings agency said. S&P also affirmed Pakistan’s ‘B’ short-term sovereign credit rating and raised its transfer and convertibility assessment to ‘B’ from ‘B-‘.
The upgrade reflects improved political and institutional stability that has enabled the implementation of reforms under the International Monetary Fund’s $7 billion Extended Fund Facility, approved in September 2024, according to S&P.
“These reforms have quickened fiscal consolidation and rebuilt external buffers,” the agency said in a statement.
Pakistan’s foreign reserves, including central bank gold holdings, climbed to $25.3 billion as of June 30, 2026, from a multi-year low of $6.7 billion in December 2022, S&P said. The reserves are more than sufficient to cover the government’s external principal payments of $16.4 billion over the next 12 months.
In April 2026, Pakistan returned to international capital markets for the first time in four years with a $750 million Eurobond placement and an inaugural 1.75 billion Chinese yuan panda bond issuance, equivalent to about $250 million, the agency noted.
The government has significantly increased tax revenues by 3.2 percentage points of GDP in the 12 months through June 2025, S&P said, with momentum continuing into fiscal 2026. The agency forecasts the general government deficit at 4% of GDP in fiscal 2027, down from nearly 8% during the crisis years of fiscals 2022 and 2023.
Pakistan’s economy grew 3.6% in fiscal 2026, marking a third consecutive year of expansion following a contraction in fiscal 2023, S&P said. The agency projects growth of 3.5% in fiscal 2027 as reforms lift economic activity.
Inflation rose to 7.2% in fiscal 2026, up from 4.5% the previous year, driven by higher energy prices stemming from the Middle East conflict. S&P forecasts inflation will settle at 6.5% by fiscal 2029 as global energy markets normalize.
The State Bank of Pakistan tightened monetary policy in April 2026 with a 100-basis-point rate increase to 11.5%, responding to rising inflationary pressures, the agency said. Domestic interest rates remain much lower than previous years, however, with S&P forecasting government interest payments to decline to an average of 38% of revenue over the next three years, from a peak above 60% in fiscal 2024.
S&P said it may lower the ratings if external or fiscal indicators deteriorate due to diminished commitment to fiscal consolidation, or if interest rates surge again, adding to the government’s debt-servicing burden.
An upgrade could occur if Pakistan’s fiscal and external metrics continue to strengthen structurally, with net general government debt falling below 60% of GDP and sustained fiscal deficits narrowing, the agency said.
The IMF completed the third review of Pakistan’s EFF program and the second review of the Resilience and Sustainability Facility in May 2026, facilitating a disbursement of $1.1 billion under the EFF and $220 million under the RSF, bringing total disbursements to $4.5 billion.
Political uncertainties have subsided since the February 2024 general elections, S&P said, with the coalition government advancing reforms and meeting IMF program targets “without significant social pressure.”
Pakistan remains subject to domestic and external security risks, the agency noted, with border tensions with India and Afghanistan raising the specter of miscalculations that could worsen credit risks.
