Average recovery projected: Fitch assigns ‘B-’ rating to USD bond, MTN programme

ISLAMABAD: Fitch Ratings has assigned Pakistan’s proposed US dollar bond and Medium-Term Note (MTN) programme a ‘B-’ rating with a Recovery Rating of ‘RR4’, citing average recovery prospects in the event of a sovereign default.

The rating is in line with Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR), while the RR4 Recovery Rating indicates average recovery prospects for investors in a default scenario.

According to Fitch, the Pakistani authorities intend to use proceeds from notes issued under the MTN programme for general budgetary and sovereign financing purposes.

READ MORE: Fitch Ratings affirms long-term debt ratings at ‘B-’, assigns recovery rating of ‘RR4’

The ratings agency said the proposed bond’s rating is sensitive to any changes in Pakistan’s Long-Term Foreign-Currency IDR. Fitch had affirmed Pakistan’s Long-Term Foreign-Currency IDR at ‘B-’ with a Stable Outlook on April 13, 2026.

Fitch identified external liquidity conditions and public finances as key factors that could trigger a downgrade. A renewed deterioration in external financing conditions—such as a prolonged period of high oil prices or a sharp decline in remittance inflows—could exert downward pressure on the rating.

Further, any stalling of fiscal consolidation that results in a material increase in government debt and further deterioration in debt-servicing metrics could lead to negative rating action.

On the positive side, Fitch said a significant and sustained easing of external financing risks could support an upgrade.

This would include greater capacity to secure external funding and a sustained recovery in foreign-exchange reserves beyond the agency’s current forecasts.

The rating could also benefit from a significant reduction in government debt and debt-servicing burdens, particularly if Pakistan successfully implements fiscal consolidation measures under its International Monetary Fund (IMF) programme and achieves structural improvements in tax revenue generation.

Fitch also highlighted governance-related risks as key rating drivers for Pakistan. The country has an ESG Relevance Score of ‘5’ for Political Stability and Rights, as well as Rule of Law, Institutional and Regulatory Quality and Control of Corruption.

The agency said these scores reflect the significant weight assigned to the World Bank Governance Indicators (WBGI) in its proprietary Sovereign Rating Model. Pakistan’s WBGI ranking remains low, at the 18th percentile.

The proposed MTN programme is aimed at providing the government with an additional avenue for raising external financing as Pakistan continues efforts to strengthen its fiscal position and rebuild external buffers.

The Fitch rating nevertheless underscores the continued sensitivity of Pakistan’s sovereign credit profile to external liquidity pressures, debt-servicing requirements and the pace of fiscal consolidation.

The ‘B-’ rating remains firmly in the speculative category, indicating that while Pakistan’s capacity to meet its financial obligations is currently assessed as adequate, its ability to do so remains vulnerable to adverse economic, financial and external developments.

Copyright Business Recorder, 2026