Pakistan could receive a sovereign ratings upgrade if improvements in its fiscal and external metrics become structural, S&P Global Ratings said.
The agency pointed to a sustained slowdown in government debt accumulation and stronger external financing indicators as key conditions for a future upgrade.
What conditions could trigger a Pakistan ratings upgrade?
S&P said an upgrade could be considered if the change in net general government debt remains below 3% of GDP on a sustained basis. This would need to be paired with higher government revenues, lower financing costs and continued expenditure controls. These improvements would need to bring net general government debt below 60% of GDP.
An upgrade could also be supported if Pakistan's net external debt falls below 100% of current account receipts. The country's gross external financing needs would also need to decline to less than 100% of the combined value of current account receipts and usable foreign exchange reserves.
Why did S&P recently upgrade Pakistan's credit rating?
S&P said its recent upgrade of Pakistan reflected improved institutional stability, which supported the government's implementation of key reforms under the IMF's $7 billion Extended Fund Facility. "The IMF's $7 billion EFF program has been critical in restoring macroeconomic stability to the country and replenishing foreign reserves," S&P said. The agency added that Pakistan had met most programme targets so far, allowing it to receive IMF disbursements on schedule.
A relatively stable political environment also supported implementation of the IMF programme, the ratings agency said. Pakistan's external buffers have strengthened significantly with support from the IMF and bilateral partners.
How much have Pakistan's foreign reserves grown?
Foreign reserves, including the central bank's gold holdings, rose to $25.3 billion at the end of June 2026, up from a multi-year low of $6.7 billion in December 2022, S&P said. These reserves were more than sufficient to cover $16.4 billion in government external principal payments due over the following 12 months.
Pakistan also returned to international capital markets in April 2026 after a four year gap, raising $750 million through a Eurobond. It also issued its first panda bond, worth 1.75 billion Chinese yuan, equivalent to about $250 million. Multilateral and bilateral financing, together with continued access to commercial borrowing, would help diversify Pakistan's external funding sources, S&P said.
Is Pakistan's fiscal deficit narrowing?
Fiscal consolidation has accelerated, supported by the government's commitment to structural reforms. Tax revenues increased by 3.2 percentage points of GDP in the 12 months to June 2025, and revenue collection maintained its momentum in fiscal 2026, S&P said. Combined with expenditure controls, this is expected to help narrow the general government deficit to 4% of GDP in fiscal 2027, down from nearly 8% during the crisis years of fiscal 2022 and 2023.
However, S&P forecasts the change in Pakistan's net general government debt to GDP ratio to average 4.2% over fiscal 2026 to 2029. That level remains above what could support a future ratings upgrade.
How is Pakistan's interest burden expected to change?
The State Bank of Pakistan tightened monetary conditions in April 2026 amid rising inflationary pressures linked to the Middle East conflict, though domestic interest rates remain significantly lower than in previous years. S&P forecasts government interest payments to decline to an average of 38% of revenue over the next three years, down from more than 60% in fiscal 2024.
Despite this expected improvement, Pakistan's interest servicing burden remains among the highest globally among rated sovereigns, the agency said.
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