By Staff Reporter
KARACHI: S&P Global Ratings raised Pakistan’s long-term sovereign credit rating to B from B-, the country’s second upgrade in 12 months and its highest standing since 2019, as the South Asian nation locks in gains from an International Monetary Fund overhaul that has rebuilt foreign reserves and narrowed budget gaps.
The upgrade, announced on Wednesday with a stable outlook, reflects improved institutional stability that has let Islamabad push through changes tied to the IMF’s $7 billion Extended Fund Facility, approved in September 2024. The agency also lifted Pakistan’s transfer and convertibility assessment to B from B-, an indication that companies and investors are finding it easier to convert rupees and move money out of the country. Pakistan’s short-term rating was affirmed at B.
Pakistan last carried a B rating between October 2016 and February 2019. The latest move follows a one-notch upgrade a year ago to B- from CCC+ and puts the country back among sovereigns such as Nigeria, Egypt, Kenya and Ecuador in S&P’s “highly speculative” tier.
“Our upgrade on Pakistan is predicated on improved institutional stability that has helped to implement critical IMF programme reforms,” S&P said in its rating action. “These reforms have quickened fiscal consolidation and rebuilt external buffers.”
The rating company pointed to a relatively stable political environment as instrumental in keeping the IMF program on track, with Pakistan meeting most of its targets under the facility so far and receiving disbursements on schedule.
S&P’s own reserves figure, which includes the central bank’s gold holdings, put the total at $25.3 billion at the end of June, up from a multiyear low of $6.7 billion in December 2022. That cushion, the agency said, is more than enough to cover $16.4 billion of government external principal payments coming due over the next 12 months. S&P said it expects continued multilateral and bilateral funding, along with ongoing access to commercial borrowing, to diversify the country’s external financing sources.
On the fiscal side, S&P forecast Pakistan’s general government deficit will narrow to 4% of gross domestic product in the fiscal year through June 2027, down from close to 8% during the “crisis years” of fiscal 2022 and 2023. It also flagged that the State Bank of Pakistan tightened monetary policy in April to counter inflationary pressure stemming from the conflict in the Middle East, even as domestic interest rates stayed well below levels seen in prior years. S&P forecast the economy will expand 3.5% in the coming fiscal year and said it expects only marginal price pressure from the regional energy shock.
S&P said it could lower the rating again if Pakistan’s commitment to fiscal consolidation falters and external or fiscal metrics deteriorate “contrary to expectations,” or if borrowing costs spike in a sign of domestic financing stress. A further upgrade could follow if deficits keep narrowing, revenue keeps climbing, financing costs ease and external metrics improve enough that net external debt falls below 100% of current account receipts and gross external financing needs drop below 100% of current account receipts plus usable reserves.
The upgrade lands as Pakistan presses Washington for additional support. Reuters reported on Wednesday, citing a person familiar with the matter, that Islamabad has asked US Treasury Secretary Scott Bessent to establish a Bilateral Exchange Stabilisation Support Facility worth $10 billion with a maturity of up to five years. The request follows a meeting in Washington on Tuesday between Bessent and Pakistani Finance Minister Muhammad Aurangzeb. If granted, the facility would add to Pakistan’s reserves, ease pressure on the rupee and reduce reliance on multilateral lenders as the country continues tighter fiscal and monetary policies under its IMF program. Neither the US Treasury nor Pakistan’s finance ministry immediately confirmed the request.
Awais Ashraf, director of research at AKD Securities, said the government’s overhaul has translated into firmer fiscal discipline through a mix of tax-revenue growth and expenditure controls, while the external account has been buoyed by rising workers’ remittances and expanding information-technology exports. He said the State Bank of Pakistan’s own foreign-exchange reserves reached a record $18.4 billion at the end of June, with external debt broadly stable over the past four years.
Even so, Ashraf said Pakistan’s equity market hasn’t caught up with the improving backdrop. The benchmark KSE-100 Index is trading at 7.6 times forward earnings, he said, versus 9.9 times the last time S&P raised Pakistan to a B rating, while the dividend yield has climbed to almost 7% from 5.5% at the time of that prior upgrade.
The upgrade adds to a string of positive signals from ratings companies and bond investors this year. British bank Barclays raised Pakistan’s dollar bonds to overweight last month, having cut the recommendation the month before, citing improved prospects in oil markets. Fitch Ratings affirmed Pakistan’s long-term foreign-currency issuer default rating at B- with a stable outlook in April, though it warned that the country’s exposure to a global energy-price shock remained a key risk, particularly if it triggered a sharp drop in foreign reserves.
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