S&P Global Ratings raised Pakistan’s long-term sovereign credit rating to ‘B’ from ‘B-‘ on 22 July, with a stable outlook. The Pakistan credit rating has not stood this high since 2016.
One figure sits behind the decision. Pakistan’s foreign exchange reserves stood at $25.3 billion at the end of June 2026. In December 2022 they were $6.7 billion, a level at which the country’s ability to pay for imports was being openly questioned.
What the agency actually changed
Three things moved. The long-term sovereign rating went up one notch to ‘B’. The transfer and convertibility assessment was also raised to ‘B’ from ‘B-‘. The short-term rating stayed where it was, at ‘B’.
That middle item matters more than its dry name suggests. A transfer and convertibility assessment is the agency’s judgement on how easily money can be converted into foreign currency and moved out of the country. Raising it signals that S&P considers those controls looser than before, which is a direct concern for anyone holding Pakistani assets or repatriating profits.
Where ‘B’ sits on the scale
S&P grades sovereign borrowers from ‘AAA’ down to ‘D’, which denotes default. Everything at ‘BB+’ and below is classed as speculative, a category the industry once labelled junk. ‘B’ sits inside that band, four notches below the investment-grade threshold of ‘BBB-‘.
The distinction is not academic. Many pension funds, insurers and index-tracking funds are barred by their own mandates from holding speculative-grade sovereign debt, or may hold only small amounts of it. Those buyers do not return when a country moves from ‘B-‘ to ‘B’. They return at ‘BBB-‘, and Pakistan is not close to that.
The reserves number behind the decision
S&P said the current level of reserves is sufficient to meet Pakistan’s external financing needs over the next twelve months. That is a narrower statement than it appears. It covers the coming year, not the years after it.
The rebuild has been steep. Reserves rose from $6.7 billion at the end of 2022 to $25.3 billion by June this year, roughly a fourfold increase over three and a half years. Import cover improved alongside it, which is what removed the immediate pressure.
What the IMF programme has to do with it
The agency tied the upgrade to reforms carried out under the International Monetary Fund’s $7 billion Extended Fund Facility, approved in September 2024. S&P pointed to improved political and institutional stability as the reason those reforms could be implemented at all, saying the changes quickened fiscal consolidation and rebuilt external buffers.
That is a specific claim, and worth reading carefully. The agency credited the ability to execute reform rather than the reform agenda itself. Ratings agencies have marked Pakistan down before on the basis that agreed measures were announced and then not carried through.
What the Pakistan credit rating upgrade changes
What it can change is price. A higher rating generally lowers the yield investors demand to hold a country’s bonds, which reduces the cost of new borrowing and of refinancing existing debt. The effect is not automatic and depends on what buyers do next. Neither S&P nor the government has published a figure for the saving.
There is a second effect, harder to measure. Ratings feed into the pricing of trade finance and the terms banks offer importers, so the benefit can reach companies that never issue a bond. Pakistan’s external position has long been shaped by its trade balance. Our earlier reporting on the widening trade deficit and on export growth to China covers the two sides of that equation.
The benchmarks S&P set for going higher
The agency was explicit about what further upgrades would require: sustained fiscal consolidation and a stronger external position. Two numbers were named as benchmarks. A fiscal deficit below 3 percent of GDP. Government debt below 60 percent.
Both are some distance from where Pakistan sits now. Meeting them would require holding spending discipline across more than one budget cycle, and through an election.
What has not changed
A sovereign rating measures one thing: the likelihood that a government repays its creditors on time. It is not a measure of household incomes, employment, or prices in the market.
Inflation, electricity tariffs and the cost of imported fuel are set by different mechanisms, and none of them moved because an agency in New York revised a letter grade. For businesses seeking foreign capital the upgrade is useful, and it arrives alongside continued efforts to attract overseas investors, as covered in our report on British companies being urged to invest in Pakistan. For a household buying flour, it changes nothing this month.
S&P’s next scheduled review will show whether the fiscal position held.
Sources: The Express Tribune; The News; Daily Pakistan; Business Recorder.
