Global credit rating agency Standard & Poor’s (S&P) has upgraded Pakistan’s sovereign credit rating for the first time in three years, raising it from CCC+ to B-.
The country’s economic outlook has also been changed to “stable”, reflecting improved macroeconomic indicators and successful implementation of fiscal reforms. The process of economic recovery and financial stability in Pakistan is likely to continue, the global rating agency stated, noting that Pakistan's default risk has decreased.
According to S&P’s report, the upgrade comes on the back of better financial conditions, increased foreign exchange reserves, and continued progress under the International Monetary Fund (IMF) program. The last time Pakistan held a B- rating was in July 2022, while the last stable outlook was assigned in February 2019.
Key highlights from report
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GDP Growth: S&P forecasts economic growth at 3.6% for the current fiscal year (2025–26), slightly below the government’s target of 4.2%. The growth rate is expected to hover around 3.5% over the next two years. In terms of revenue, GDP is likely to increase by 15%.
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Inflation: Inflation is projected to decline to 6.5%, bringing relief after years of double-digit price hikes.
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Exchange Rate: The rupee is expected to remain stable at around Rs280 per dollar.
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Unemployment: The jobless rate is forecast to hold steady at 7%.
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Foreign Exchange Reserves: Reserves are projected to rise to $18.28 billion, a significant increase from $6.7 billion in December 2022. Total reserves, including gold, reached $20.5 billion by July 2025.
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Current Account & Trade Balance: The current account deficit is estimated at just 0.6% of GDP, while the trade deficit may reach 6.2%.
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Fiscal Health: The fiscal deficit has been brought down from 7.9% to 5.1% due to expenditure control. Tax revenues have also grown by 3%, thanks to IMF-backed reforms.
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Debt Servicing: Interest payments on loans are expected to decline gradually, helping ease the debt burden.
Risks and challenges
Despite the positive outlook, S&P has cautioned that political uncertainty remains high in Pakistan. The report notes that the coalition government has so far managed to implement tough reforms without triggering major social unrest, but warned of socio-political resistance to austerity and tax measures in the future.
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It also notes that achieving the remaining IMF targets, including increasing tax revenue, will remain a challenge.
Security concerns also persist. While the domestic security situation has improved since 2010, the agency notes that Pakistan continues to face external threats, especially from India. Any escalation in tensions, particularly with India, could increase credit risk. It cautions that a stable political environment is a prerequisite for continued economic improvement.
IMF and climate financing
S&P also welcomed Pakistan’s $8.4 billion deal with the IMF, including allocations under the Extended Fund Facility (EFF) and climate financing components. The agreement is seen as a key contributor to restoring investor confidence and stabilizing the macroeconomic landscape.
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Long-term outlook
Looking ahead, S&P projects that Pakistan’s per capita income could exceed $2,000 by fiscal year 2026–27. However, it emphasized that further upgrades in the rating would depend on institutional strengthening, sustained political stability, and continued economic discipline.
The agency noted that while Pakistan is expected to roll over and repay commercial loans over the coming year, any deterioration in external financing conditions or resurgence in debt levels could lead to a rating downgrade.
