By Staff Reporter
ISLAMABAD: Barclays has upgraded Pakistan’s dollar bonds to overweight, reversing a downgrade it issued in May, as the British bank pointed to improving oil market dynamics and what it described as an increasingly resilient external position, according to a research note cited by Bloomberg on Wednesday.
Pakistan’s Finance Minister adviser Khurram Shehzad shared the report, signalling Islamabad’s eagerness to highlight improving investor sentiment toward the country’s debt at a time when it has been working to rebuild credibility with international markets following a near-default crisis in 2023.
The upgrade marks a notable shift in Barclays’ stance after the bank had lowered its rating just weeks earlier. In the note, analysts including Avanti Save argued that Pakistan’s macroeconomic fundamentals had proven more durable than previously anticipated.
“The resilience of Pakistan’s external position cannot be ignored and it underpins the more optimistic view,” the analysts wrote, according to Bloomberg.
Barclays described Pakistan’s economy as continuing to demonstrate stability across several metrics, including an improved fiscal position, steadier external buffers, relatively steady foreign reserves, and a moderate growth and inflation outlook — a combination that the bank said warranted a more constructive investment posture.
The note recommended buying Pakistan’s sovereign dollar bonds maturing in 2031, 2036 and 2051, as well as the 2031 bond issued by the Pakistan Water and Power Development Authority (WAPDA). It also recommended selling the five-year Pakistan credit default swap.
Central to Barclays’ revised view was Pakistan’s geopolitical positioning, which the bank said continued to attract multilateral and bilateral financial support. “Multilateral and bilateral financing backstops are intact as the country’s geopolitical position remains critical to Central Asia and the Middle East — a potential tailwind,” the note said.
Pakistan secured a $7 billion International Monetary Fund bailout programme last year and has since worked to stabilise an economy that had been battered by soaring inflation, a collapsing currency and dwindling foreign exchange reserves. Foreign reserves have recovered to levels that provide several months of import cover, and inflation has fallen sharply from peaks above 38 percent recorded in 2023.
On the question of formal credit rating upgrades — which carry broader implications for the cost of Pakistan’s sovereign borrowing — Barclays said progress had been slower than hoped but expressed cautious optimism. The bank said rating agencies may look to review and conclude positively on Pakistan’s ratings in the second half of 2026.
A formal upgrade from the major rating agencies would be a significant milestone, potentially lowering borrowing costs and widening the pool of institutional investors able to hold Pakistani debt under their mandates.
Pakistan’s dollar bonds have been among the higher-yielding frontier market instruments, reflecting the country’s historically elevated risk premium. Any sustained improvement in the credit outlook would be closely watched by investors across emerging and frontier markets.
Barclays, headquartered in London, operates one of the world’s largest investment banking franchises and its sovereign debt research is widely followed by institutional investors with exposure to frontier and emerging market bonds.
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