Pakistan’s sovereign credit rating has been upgraded by S&P Global Ratings, with the agency raising its long-term assessment of the country to ‘B’ from ‘B-‘ on Wednesday. The move, accompanied by a stable outlook, reflects what the agency described as improved political and institutional stability that has allowed the government to press ahead with a difficult programme of economic reforms.
Pakistan’s Sovereign Credit Rating Reaches Highest Level in Nearly a Decade
The upgrade returns Pakistan’s sovereign credit rating to a level last held between October 2016 and February 2019, marking the country’s strongest standing with the agency in close to a decade. Alongside the long-term upgrade, S&P also affirmed Pakistan’s ‘B’ short-term sovereign credit rating and raised its transfer and convertibility assessment to ‘B’ from ‘B-‘.
Prime Minister Shehbaz Sharif welcomed the announcement, describing it as a significant milestone for the country’s economy. Khurram Schehzad, an advisor to the finance minister, called the decision another vote of confidence in Pakistan’s economic turnaround, noting that the country had not held a ‘B’ rating since 2016 and 2017.
IMF-Backed Reforms Underpin the Upgrade
S&P attributed the upgrade in large part to the sustained implementation of reforms supported by the International Monetary Fund’s $7 billion Extended Fund Facility, approved in September 2024. According to the agency, these reforms have quickened fiscal consolidation and rebuilt external buffers, allowing Pakistan to reduce its vulnerability to external shocks.
The finance ministry has continued to pursue fiscal consolidation despite resistance from within government to some of the more difficult measures involved, a factor S&P cited as evidence of strengthened institutional capacity. The rating agency said this steady implementation of critical reforms had bolstered the country’s foreign exchange reserves and eased pressure on its external credit metrics.
Foreign Exchange Reserves Rebuild From Multi-Year Low
Central to the improved outlook has been a marked recovery in Pakistan’s foreign exchange position. Reserves, including central bank gold holdings, climbed to $25.3 billion as of 30 June 2026, up sharply from a multi-year low of $6.7 billion recorded in December 2022. S&P noted that current reserve levels are more than sufficient to cover the government’s external principal payments of $16.4 billion due over the next 12 months.
The rebuilding of these buffers has been supported by continued official financing alongside the government’s own efforts to stabilise the balance of payments, reducing the near-term risk of a sovereign default that had loomed over Pakistan in previous years.
Fiscal Consolidation Eases Pakistan’s Debt Burden
S&P also pointed to the government’s success in broadening its tax base and improving revenue collection as a key driver of the upgrade, describing it as having accelerated fiscal consolidation and supported a steady decline in the country’s net general government debt-to-GDP ratio. The agency forecasts that government interest payments will decline to an average of 38 percent of revenue over the next three years, down from a peak above 60 percent in fiscal 2024.
Domestic interest rates, while still elevated by historical standards, remain considerably lower than in previous years, further easing the government’s debt-servicing burden as fiscal discipline takes hold.
Growth, Inflation and Interest Rate Dynamics
Pakistan’s economy expanded by 3.6 percent in fiscal 2026, marking a third consecutive year of growth following a contraction in fiscal 2023. S&P projects growth will moderate slightly to 3.5 percent in fiscal 2027 as reforms continue to shape economic activity.
Inflation, meanwhile, rose to 7.2 percent in fiscal 2026 from 4.5 percent the previous year, driven largely by higher energy prices linked to the conflict in the Middle East. S&P expects inflation to ease gradually, settling at around 6.5 percent by fiscal 2029 as global energy markets normalise. In response to rising price pressures, the State Bank of Pakistan tightened monetary policy in April 2026, raising interest rates by 100 basis points to 11.5 percent.
Risks That Could Threaten the Gains
Despite the improved assessment, S&P cautioned that Pakistan’s progress remains conditional on continued political and institutional stability, warning that weaker fiscal discipline could put the upgrade at risk. The agency also flagged ongoing security and geopolitical challenges as factors that could complicate the country’s reform trajectory in the period ahead.
Reaction and What Lies Ahead
The upgrade to Pakistan’s sovereign credit rating comes as Islamabad seeks to broaden its access to external financing, including a proposed $10 billion exchange stabilisation facility from the United States that remains under discussion. Should such a facility be agreed, it would further strengthen Pakistan’s foreign exchange reserves and reduce its reliance on multilateral lenders, even as the government continues to pursue the tighter fiscal and monetary policies required under its IMF programme.
For now, S&P’s decision offers Pakistan a tangible marker of progress after years of economic strain, though the agency’s own caveats suggest that sustaining the improved rating will depend heavily on the government’s ability to maintain reform momentum in the months ahead.
Published in SouthAsianDesk, July 24, 2026
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