THE S&P decision to upgrade Pakistan’s long-term sovereign credit rating from ‘CCC+’ to ‘B-’ with a stable outlook is a sign of confidence in the country’s economic direction and financial management under the $7bn IMF facility. This is the first time since February 2019 that Pakistan has secured a B- rating with a stable outlook. S&P has cited rapid improvements in economic conditions as a reason for its rating upgrade, attributing the positive momentum to fiscal reforms and efforts to boost revenues. It is hopeful that continued recovery and efforts to enhance revenues will “stabilise fiscal and debt metrics’. The agency expects 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. “Though debt servicing costs remain hefty, the government’s efforts to expand revenue and benign inflation are hastening the pace of fiscal consolidation,” S&P said.

The S&P upgrade follows similar moves by Fitch in April and Moody’s in August. Fitch had cited increased confidence in progress on narrowing budget deficits and Moody’s changed its outlook to positive from stable on improved macroeconomic conditions. The upgrades follow repeated pleas from the finance minister to the global rating agencies to help Pakistan return to international capital markets at favourable conditions. The rating upgrade is being seen as a sign of renewed global investor confidence in Pakistan’s reform trajectory as reflected by a rise in the country’s dollar bonds following the announcement of S&P’s decision. But the question is: does the rating upgrade signal that the tide is turning for our embattled economy? There are no wrong answers, only different views. Inflation is down, the fiscal deficit has significantly narrowed, the current account is in surplus, and the exchange rate remains stable. These are signs of macroeconomic discipline taking hold. However, there is a more cautious perspective: stabilisation has come at considerable cost to growth and public well-being. Economic productivity is declining, while exports and foreign investment have stagnated. The tax-to-GDP ratio remains among the lowest in the world, and despite a remarkable surge in remittances, the dollar liquidity crunch persists. In short, some may see the glass as half full, and others as half empty. But whichever perspective one chooses, the glass does remain half empty.

Published in Dawn, July 26th, 2025