By Staff Reporter
KARACHI: Fitch Ratings assigned a B- rating to Pakistan’s proposed US dollar-denominated bond on Tuesday, placing the sovereign debt sale firmly in speculative-grade territory as the country works to shore up its external finances.
The rating agency also attached a Recovery Rating of RR4 to the notes, signaling average recovery prospects for bondholders should Pakistan default. Islamabad intends to funnel proceeds from the issuance toward general budgetary needs and sovereign financing, according to Fitch.
The bond rating mirrors Pakistan’s Long-Term Foreign-Currency Issuer Default Rating, which Fitch affirmed at B- with a stable outlook on April 13. That alignment means the bond’s rating trajectory will track any future moves on the sovereign rating itself.
Fitch’s assessment leans heavily on governance metrics. The agency assigned Pakistan an ESG Relevance Score of 5 — the highest on its scale — across political stability and rights, rule of law, institutional and regulatory quality, and control of corruption. Those scores draw from World Bank Governance Indicators, which carry substantial weight in Fitch’s proprietary Sovereign Rating Model. Pakistan sits in just the 18th percentile on that ranking.
Where the Rating Could Move
Fitch laid out clear markers for where Pakistan’s rating goes from here.
A downgrade could follow if external liquidity conditions deteriorate again — a scenario the agency tied to sustained high oil prices or a sharp pullback in remittance inflows, which have served as a critical financing cushion for the economy. Fitch also flagged the risk of stalled fiscal consolidation, warning that a material buildup in government debt paired with weakening debt-servicing metrics would pressure the rating lower.
The path to an upgrade runs through the opposite dynamics. Fitch pointed to a sustained recovery in foreign-currency reserves beyond its current forecasts, along with demonstrated improvement in Pakistan’s ability to source external funding, as conditions that could support positive rating action. On the fiscal side, the agency said meaningful declines in government debt and debt-servicing burdens — particularly if fiscal consolidation stays aligned with commitments under Pakistan’s IMF program and yields structural gains in tax revenue — would strengthen the case for an upgrade.
Financing Mix
The proposed bond sale underscores Pakistan’s continued reliance on a blended financing strategy, drawing on multilateral lenders, bilateral partners, and international capital markets simultaneously to meet external obligations and rebuild its foreign-exchange position.
The B- rating keeps the notes in highly speculative territory, a designation that reflects the persistent strain on Pakistan’s external liquidity, its debt-servicing capacity, and the durability of its fiscal consolidation push — the same pressure points Fitch has tracked across its sovereign coverage of the country this year.
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