S&P raises Pakistan's sovereign rating to 'B', citing reforms implementation

Credit ratings agency S&P Global raised Pakistan’s long-term sovereign credit rating to “B” from “B-” on Wednesday, citing stronger institutional stability and effective implementation of reforms under an IMF program.

“The stable outlook reflects our view of Pakistan’s improved political and institutional settings. Entrenched economic reforms will bring about a sustained period of steady growth and fiscal consolidation,” said S&P.

“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.”

The agency said the government’s efforts to widen the tax base have improved revenue collection and accelerated fiscal consolidation, supporting a gradual decline in the country’s debt burden.

Reforms backed by the IMF have helped restore macroeconomic stability, rebuild foreign exchange reserves and ease strains on Pakistan’s fiscal and external positions, S&P said.

“The upgrade on Pakistan is predicated on improved institutional stability that has helped to implement critical IMF program reforms,” it said.

GDP at 3.5%

S&P projected Pakistan’s GDP growth at 3.5% in fiscal 2027 “supported by IMF program reforms alongside marginal price pressures due to an energy shock in the wake of the Middle East conflict”.

It noted that political uncertainties in Pakistan have somewhat subsided.

“Since the February 2024 general elections, the coalition government has been able to advance reforms and meet IMF program targets without significant social pressure.

“The progress on the implementation of the reforms suggests an enhanced capacity to maintain expenditure controls and expand the tax revenue base.”

However, Pakistan remains subject to domestic and external security risks, it warned.

“The country’s security situation has improved since the early 2010s, but the potential to deteriorate remains. Border tensions with India and Afghanistan, as apparent in the recent outbreak of hostilities over the past year, can raise the spectre of miscalculations and accidental clashes that could worsen credit risks,” the agency said.

Upgrade a ‘vote of confidence’

Advisor to Finance Minister Khurram Schehzad described the upgrade as “another major vote of confidence in Pakistan’s economic turnaround”, noting that the country had last held a ‘B’ sovereign rating during 2016-17.

In a post on X, he said that S&P cited Pakistan’s strengthened institutional capacity, successful implementation of critical economic reforms, faster fiscal consolidation, stronger foreign exchange reserves and improved macroeconomic stability as key factors behind the rating upgrade.

“The stable outlook reflects confidence that continued reforms will support sustained growth and fiscal discipline,” he said.