The history of Pakistan’s rating by all three international agencies — Standard and Poor’s (S&P), Moody’s and Fitch — is disturbing as the country was never rated higher than B+ (with Moody’s equivalent rating B1) defined as highly speculative indicative of material default risk with a limited margin of safety (financial commitments being met however capacity for continued payment vulnerable to deterioration in the business and economic environment).
And the limited margin of safety has invariably been linked to Pakistan being on an International Monetary Fund programme (IMF).
Within the speculative category, below investment grade, the best rating for the three agencies is as follows: Moody’s Baa1, Baa2 and Baa3, S&P’s BB+, BB and BB- and Fitch identical to S&P rating – a category that Pakistan has yet to be allocated.
The next category down is speculative grade very high risk with Moody’s rating at B1, B2 and B3 with S&P equivalent of B+, B and B- and Fitch identical to S&P. Fitch upgraded Pakistan to B- on 15 April 2025 (positive) – though this upgrade has not been followed by the other two agencies yet.
The next one down is speculative grade very high risk with Moody’s Caa1, Caa2, and Caa3, S&P equivalent of CCC+, CCC and CCC- and Fitch merely CCC.
Moody’s speculative very near default (even lower category) is Ca, S&P at CC, and C while Fitch gives the same rating as S&P.
The lowest category is default, and only once was Pakistan rated in the default category by S&P in the aftermath of the 1998 nuclear tests. Funding, bilateral and multilateral, was restored by the end of the following year.
Movement within each category is indicative of some improvement, though not enough to change the overall category from say very high risk to highly speculative within the speculative grade.
The following graph shows S&P’s ratings for Pakistan since 1995 till September 2020 (Covid-19 year). The dips and upswings of Pakistan’s rating can be sourced to specific events. In 1998 the dip is attributed to the nuclear tests in Chagi which led to the cessation of US-led bilateral and multilateral loans to the government of Pakistan. This was restored by 2000 and explains the spike in the ratings supported by IMF programme loans. The US led financial support for Pakistan post 9/11 2001 is palpable but which finally ended as our transactional relationship with the US fizzled out.
Improved ratings followed the approval of a programme loan by the IMF: (i) Stand-By Arrangement (SBA) 29 November 2000; (ii) Extended Credit Facility 5 December 2004; (iii) SBA 24 November 2008; and (iv) Extended Fund Facility 4 September 2013.
IMF’s last three loan approvals are: (i) Extended Fund Facility (EFF) approved 3 July 2019 by the Fund Board which was suspended during the Covid-19 years – 2020 to 2021; and once reactivated it was suspended after the successful completion of the eighth review as the then finance minister Ishaq Dar bafflingly refused to implement the two agreed conditions – not allowing a market based external rupee value and subsidizing exporters electricity through an unbudgeted 110 billion rupees; (ii) Stand By Arrangement for nine months was agreed in June 2023 – to tide the country over till elections; and (iii) EFF staff level agreement reached before the budget last year.
The following table indicates that the linkage between a Fund programme approval and improved rating is delayed, as all post 2019 Fund documents maintain that issues with implementation of past Fund advice need to be addressed.
In comparison, our regional neighbours have performed considerably better than us. China’s credit rating is a A1 negative backed by foreign direct investment inflows of hundreds of billions of dollars; India’s is at Baa3, the lowest investment grade category with stable outlook implying that Moody’s believes that India’s credit worthiness is likely to remain stable which explains why foreign direct investment continues to flow into the country. Bangladesh rating is B+ with stable outlook, Nepal’s at BB- and Sri Lanka at Caa1 with a stable outlook after the country’s creditors approved a 12.55 billion dollar debt overhaul in December 2024.
To conclude, Pakistan has yet to reach investment grade and one would hope that the 30 billion dollars plus Memoranda of Understanding translate into binding contracts for surely once inflows start Pakistan will finally be placed in the investment grade category.
Copyright Business Recorder, 2025