S&P Global Ratings on Thursday upgraded Pakistan’s sovereign credit rating to ‘B-‘ from ‘CCC+’ with a stable outlook, citing improved finances and foreign exchange reserves following the IMF bailout. However, the global rating agency warned that escalating border tensions with India could materially worsen Pakistan’s credit risk.
“Official aid and recent improvements to its balance-of-payments position have boosted Pakistan’s foreign exchange reserves, thus alleviating stress on external metrics. Though debt-servicing costs remain hefty, the government’s efforts to expand revenue and more benign inflation are hastening the pace of fiscal consolidation,” it said in a statement.
The stable outlook reflects expectations that external support to Pakistan from key multilateral and bilateral partners, alongside the strengthening of its fiscal position, will persist over the next 12 months to meet its considerable debt obligations, the agency noted.
It added that ratings could be downgraded if Pakistan’s external or fiscal indicators deteriorate significantly. Conversely, the ratings may be raised if institutional and political settings improve, leading to entrenched economic reforms, sustained growth, and stronger fiscal consolidation.
S&P said it expects political uncertainty to remain high due to Pakistan’s fractious political environment.
“The ratings on Pakistan remain constrained by elevated domestic and external security risks,” the agency added. While the country’s security situation has improved since the early 2010s, the potential for deterioration remains.
“Border tensions with India, as evident in the recent outbreak of hostilities following the Pahalgam terrorist attack in May 2025, can raise the specter of miscalculations and accidental clashes that could escalate well beyond the intentions of both sides,” it warned, adding that such a scenario would materially worsen Pakistan’s credit profile.
The IMF’s Extended Fund Facility (EFF) and Resilience and Sustainability Facility run concurrently over 37 months, giving Pakistan a combined support package of $8.4 billion.
S&P Global had in May warned that hostilities between India and Pakistan heighten credit risks for both countries, and any escalation could put downward pressure on their sovereign ratings. India had launched Operation Sindoor at the time, following the killing of 26 civilians in the Pahalgam attack.
