By Staff Reporter
ISLAMABAD: Pakistan has notched one of the sharpest drops in sovereign default risk worldwide, emerging as the second-best performer globally according to Bloomberg data on credit default swap (CDS)-implied probabilities, an adviser to the finance minister said on Sunday.
The improvement underscores a tentative recovery in investor sentiment towards the South Asian nation’s battered finances after a bruising crisis that nearly tipped it into default two years ago.
“As per the latest data posted by Bloomberg, Pakistan stands out globally as the 2nd most improved economy in terms of reduction in sovereign default risk, as measured by CDS-implied default probability globally,” Khurram Schehzad, an adviser to Finance Minister Muhammad Aurangzeb, wrote in a post on X. Pakistan trailed only Turkiye in the global emerging market (EM) rankings for default risk reduction, Schehzad said.
The country has logged one of the sharpest declines in sovereign default risk over the past 15 months, from June 2024 to September 2025. A CDS-implied probability gauges the odds that a borrower, such as a company or sovereign state, will fail to meet debt obligations. It is calculated from the market price of a CDS contract, essentially financial insurance that investors purchase to hedge against default risk, according to the International Monetary Fund (IMF). A falling CDS price signals that markets view the borrower as less prone to default, reflecting broader confidence in its ability to service debt.
“Notably, Pakistan is the only country in the EM sample showing consistent quarterly improvement across the past year,” Schehzad wrote. He noted that the nation’s default probability has fallen by 2,200 basis points over the period. That marks the steepest decline among major EMs, outpacing South Africa at 3 percentage points and El Salvador at 2 percentage points, he added.
By contrast, nations including Argentina, Egypt and Nigeria have registered rising default risks. The plunge in risk metrics points to “strengthening investor confidence, underpinned by macroeconomic stabilisation, structural reforms, timely debt servicing, and staying the course with the International Monetary Fund,” Schehzad said.
He also pointed to recent upgrades in Pakistan’s sovereign credit ratings from agencies including S&P Global, Fitch and Moody’s as bolstering the positive shift.
“Pakistan is steadily rebuilding market credibility, standing out as one of the most improved sovereign credit stories in the emerging market universe,” Schehzad said.
Pakistan’s economic woes peaked in 2023, when critically low foreign exchange reserves and a severe balance-of-payments crisis raised the spectre of default. The immediate threat was staved off after the IMF approved a key loan tranche under a standby arrangement, complemented by bilateral support from allies including China, the United Arab Emirates and Saudi Arabia. Since then, Islamabad has pressed ahead with IMF-mandated reforms aimed at shoring up fiscal discipline, curbing inflation and rebuilding depleted reserves. Those efforts have begun to yield results, with indicators such as the current account balance and remittances showing signs of stabilisation.
Copyright © 2021 Independent Pakistan | All rights reserved
