• Cites improved political, institutional settings and reforms
• Warns weaker fiscal discipline could lead to downgrade

ISLAMABAD: Pakistan regained a ‘B’ rating with a ‘stable’ outlook from Standard & Poor’s (S&P) Global Ratings after almost a decade of junk ratings, following years of painful economic reforms and what the agency described as “improved political and institutional settings”.

“On July 22, S&P Global Ratings raised its long-term sovereign credit rating on Pakistan to ‘B’ from ‘B-’. The outlook is stable,” the US-based agency, one of the world’s top three credit rating firms, said on Wednesday. “We also affirmed the ‘B’ short-term sovereign credit rating,” it added. At the same time, the rating agency also raised Pakistan’s transfer and convertibility assessment to ‘B’ from ‘B-’.

Pakistan was last rated in the ‘B’ category during 2016-18 before being downgraded to ‘B-’ in February 2019 and further to ‘CCC+’ in December 2022. S&P upgraded the country’s rating to ‘B-’ in July last year.

S&P said the stable outlook reflected its view of Pakistan’s improved political and institutional settings. Entrenched economic reforms would bring about a sustained period of steady growth and fiscal consolidation.

“We anticipate 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 agency said Pakistan had strengthened its institutional capacity through the implementation of critical reforms. This had bolstered the country’s foreign exchange reserves and alleviated pressure on external credit metrics. The government’s efforts to expand its revenue base had hastened the pace of fiscal consolidation, facilitating a steady decline in its net general government debt-to-GDP ratio.

Meanwhile, Prime Minister Shehbaz Sharif welcomed the decision of S&P Global Ratings to upgrade Pakistan’s sovereign credit rating from B-” to “B, describing it as a significant milestone for the country’s economy. According to APP, the PM said the upgrade reflected the international community’s confidence in the government’s effective economic policies, fiscal discipline, structural reforms, and sustained efforts to stabilize the national economy.

The stable outlook also reflected expectations that improved institutional settings would anchor economic reforms and bring about a sustained period of steady growth and fiscal consolidation.

The agency warned that it might lower the ratings if, contrary to its expectations, Pakistan’s external or fiscal indicators deteriorate as a result of a diminished commitment to fiscal consolidation. This could erode financial support from key bilateral and multilateral partners, putting pressure on usable foreign exchange reserves.

Furthermore, if interest rates were to surge again, materially adding to the government’s already heavy debt-servicing burden, the rating agency would view that as an indication of domestic financing stress.

On the upside, it could raise the ratings further if Pakistan’s fiscal and external metrics continue to strengthen structurally. This could happen if the country’s fiscal deficits narrow to the extent that the increase in net general government debt remains below 3pc of GDP on a sustained basis.

Simultaneously, government revenue would need to continue rising while financing costs moderate, supported by strong expenditure controls. Such a scenario would be accompanied by net general government debt falling below 60pc of GDP. Concurrently, improvements in Pakistan’s external indicators, resulting in net external debt falling below 100pc of current account receipts and gross external financing needs declining to less than 100pc of the combined total of current account receipts and usable reserves, could lead to a further upgrade.

S&P explained that its upgrade of Pakistan was predicated on improved institutional stability that helped implement critical IMF programme reforms. These reforms had accelerated fiscal consolidation and rebuilt external buffers. “We believe multilateral and bilateral funding, coupled with continued access to commercial borrowing, will diversify Pakistan’s external funding options,” it observed.

The agency noted that the pace of fiscal consolidation had accelerated because of the government’s commitment to structural reforms. “We project the change in the ratio of net general government debt to GDP will average 4.2pc for fiscal 2026-2029,” S&P said.

Despite the central bank tightening monetary policy in April 2026 following rising inflationary pressures stemming from the Middle East conflict, the rating agency noted that domestic interest rates remained much lower than in previous years. It, therefore, forecast government interest payments to decline to an average of 38pc of revenue over the next three years, from a peak of more than 60pc in fiscal 2024.

Published in Dawn, July 23rd, 2026