By Staff Reporter
KARACHI: Fitch Ratings affirmed Pakistan’s long-term foreign-currency issuer default rating at B- and assigned a recovery rating of RR4 to the nation’s senior unsecured debt, after lifting the ratings from under criteria observation.
The moves come as Fitch applies its revamped sovereign rating criteria, which took effect in September 2025 and for the first time incorporate recovery assumptions into the debt ratings, the agency said in a statement on Wednesday.
Pakistan’s B- rating signals material default risk remains, though with a limited margin of safety, according to Fitch’s scale. Obligations are being met for now, but the capacity to keep paying could falter if the business or economic environment worsens. The rating sits in the speculative-grade category, below investment grade, which typically indicates higher credit risk.
The senior unsecured long-term debt ratings for Pakistan and the Pakistan Global Sukuk Programme Company Limited are aligned with the issuer default rating. This reflects Fitch’s view of average recovery prospects in a default scenario, driven by the country’s elevated general government debt and interest payments relative to revenue, and no other factors warranting an adjustment up or down from the IDR.
Fitch had upgraded Pakistan’s long-term foreign-currency IDR to B- with a stable outlook from CCC+ back on April 15, 2025.
The agency assigned Pakistan an ESG relevance score of 5 for political stability and rights, as well as for rule of law, institutional and regulatory quality, and control of corruption—consistent with all sovereigns. These scores show the significant influence of World Bank Governance Indicators in Fitch’s proprietary model, with Pakistan ranking in the 22nd percentile on the WBGI.
Looking ahead, Fitch outlined several sensitivities that could sway the ratings. Downside risks include a failure to steer government debt and servicing metrics onto a sustained downward trajectory, or a fresh slide in external liquidity—perhaps from stalled IMF program reviews or overly loose economic policies. On the upside, meaningful reductions in debt and servicing burdens could prompt an upgrade, such as through fiscal consolidation aligned with IMF commitments that bolster tax revenue structurally. A notable easing of external financing pressures, including better access to funding and foreign-currency reserves exceeding forecasts on a lasting basis, might also trigger positive action.
Pakistan’s credit profile has been under scrutiny amid ongoing economic challenges, with the government navigating IMF-backed reforms to stabilise finances and rebuild buffers. The stable outlook at B- suggests Fitch sees the current trajectory holding steady, barring major setbacks. Fitch’s criteria overhaul aims to better capture recovery dynamics in sovereign defaults, marking a shift in how the agency evaluates debt instruments. The RR4 rating implies expected recoveries of 31% to 50% in a hypothetical default, based on Fitch’s framework.
The rating agency’s categories range from AAA to BBB for investment grade, denoting low to moderate risk, down to BB to D for speculative grade, where risks are heightened or default has occurred. Modifiers like + or – fine-tune distinctions in default probability or recovery for ratings from AA to CCC. Market participants often use these distinctions to gauge investment suitability, though Fitch stresses that terms like investment or speculative grade are conventions, not endorsements for buying or selling securities.
Pakistan’s economy, the third-largest in South Asia with a projected nominal GDP of about $410 billion in 2025, continues to grapple with fiscal and current account deficits, and external vulnerabilities, even as it secures multilateral support. The IMF’s extended fund facility, approved in 2024, has been pivotal in averting a deeper crisis, but adherence to targets remains key.
Fitch’s affirmation provides a measure of continuity for investors eyeing Pakistani bonds and sukuk, which have seen volatile trading amid global rate shifts and regional geopolitics. The recovery rating addition offers fresh insight into potential loss-given-default scenarios, a tool increasingly valued in frontier market assessments. The stable outlook aligns with broader agency views, as Moody’s and S&P have similarly positioned Pakistan in the low-B range, reflecting guarded optimism on reforms.
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