S&P upgrades Pakistan’s credit rating to ‘B negative’

Islamabad:

Standard & Poor’s credit rating agency upgraded Pakistan from a notch to “B negative” on Thursday, an improvement from its previous position, although they are still two places below the investment. This move comes from the application of reforms and the risks to collapse sovereignty.

S&P’s global ratings have increased long -term credit reviews from “CCC positive” to “b negative” after a two -and -a -half -year -old gap, according to a statement by the Organization, one of the three largest credit rating companies.

The organization also commissioned a steady perspective in Pakistan. Upgrading has improved Pakistan’s credit rating from “very high credit risk, vulnerable to non -payment” in “extremely speculative”. Due to its credit rating, Pakistan was unable to float international bonds to increase the debt of the last financial year more.

S&P said: “The Government of the Coalition led by Pakistan Muslim League League (PML-N) has shown its ability to implement the necessary reforms under the IMF program without significant social unrest.”

The Agency noted that the willingness of policy -making responsible to comply with spending controls and continue to boost the basis of tax revenue will be critical for achieving the remaining objectives set out in the EFF (EFF) facility.

The Ministry of Finance has played a key role in staying well with the IMF program, despite tackling criticism of making difficult decisions required to complete the first program review and align the new budget with the requirements of mutual capital.

Upgrading S&P’s assessments reflects the organization’s view that Pakistan depends less on the favorable macroeconomic and economic developments for fulfilling its obligations. Pakistan has replenished its foreign stocks in the last 12 months and short -term deficiency risks have been reduced, according to S&P.

However, a vulnerable resulting area is related to the exchange rate, which led to the intervention by the military institution to avoid the recurrence of the gray market.

S&P stressed that the depreciation of Pakistani Rupia over the US dollar in recent years has contributed to stagnation in the country’s nominal per capita. The Agency noted that Rupia has stabilized during the latest use and with the increase in real growth, it predicts that the GDC per capita would exceed $ 2,000 in the financial year 2027.

The Evaluation Service also stressed that political stability and improvement of security conditions are critical to further upgrades. However, he expects that political uncertainty will remain high due to a volatile political environment.

“Pakistani policy is flowing from the disappearance of former Prime Minister Imran Khan through a parliamentary non -confidence in April 2022,” S&P noted “we believe that a stable political environment in Pakistan is a key prerequisite for improving the creditworthiness of the government.”

The security situation has improved since the beginning of 2010, but the possibility of deterioration remains. Border tensions with India, highlighted by the recent event of hostilities following the Pahalgam terrorist attack in May 2025, could escalate beyond the intentions of both sides, the organization warned.

S&P also pointed out the risks associated with debt service costs, which remain high. The Agency said Pakistan’s steady perspective reflects his expectation that external support from key polymer and bilateral partners, along with improvements in the country’s fiscal position, would insist on the next 12 months to meet significant debt liabilities.

The prospects also reflect the expectations that ongoing economic recovery and government efforts to boost revenue will stabilize tax and debit measurements.

Pakistan’s current account has published a surplus in tax 2025, the first surplus in 14 years. The average annual surplus of 0.5% of GDP was recorded by record records, which amounted to $ 39 billion or $ 9.5% of GDP. These developments have enhanced Pakistan’s external measurements and relieve short -term external stress.

Reforms associated with the IMF program have significantly increased the government’s tax revenue by 3% of GDP in the last 12 months.

Along with spending controls, S&P predicts that the general government deficit will be reduced to 5.1% of GDP in Economic 2026, although this is higher than the government budget target.

The organization has predicted inflation to remain about 6.5% in the next two to three years. As a result, monetary conditions will be further reduced and at lower domestic interest rates, government interest payments will be reduced by average 41% of revenue over the next three years, from a top of over 60% in the financial 2024.

“Nevertheless, the ratio of interest to execute Pakistan remains one of the highest worldwide among the scored sovereigns,” said S&P. “The main pressure on debt sustainability is the extremely high interest cost of tax revenue.”

This remains a significant restriction on Pakistan’s debt assessment. S&P is considering further deterioration of debt ratio to revenue, raising the increase of 443% to 454% in this financial year.

Future Warning:

“We can reduce our evaluations if Pakistan’s external or budget indicators are far beyond today’s levels,” S&P said.

The pressure downhill would result in whether financial support from basic bilateral and polymer partners is quickly eroded or if the foreign exchange stocks used are significantly, indicating difficulties in serving external debt liabilities.

In addition, if interest rates will rise and add substantially to the burden on the government’s debt, the Agency would consider that as an indication of domestic funding stress, he added.