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SP Global Ratings on Wednesday upgraded Pakistans long-term sovereign credit rating to B from B-, citing an improving external position and gradual macroeconomic stabilisation, while assigning a stable outlook. SP kept Pakistans short-term credit rating steady at a B while upgrading its transfer and convertibility rating to B from a B-, signalling that Islamabad can meet its immediate debt payments and it is getting easier for foreign investors to exchange currency and move funds abroad. A countrys sovereign credit rating serves as an indicator of its financial health for foreign investors. It assesses creditworthiness the risk involved in lending money to the country, evaluated by its ability to repay its debts. Upgrading this rating gives global lenders greater confidence in the economy, helping the country attract foreign investment and borrow funds on better terms. In a statement, the credit rating agency said the change in rating was based on its belief that the country had strengthened its institutional capacity, allowing it to implement reforms of the International Monetary Fund (IMF). Our upgrade on Pakistan is predicated on improved institutional stability that has helped to implement critical IMF programme reforms, it said. These reforms have quickened fiscal consolidation and rebuilt external buffers. It noted that the institutional settings of Pakistan had strengthened over the last two years, in particular highlighting the passage of the IMFs Extended Fund Facility (EFF) 7 billion programme in September 2024 as critical in restoring macroeconomic stability to the country and replenishing foreign reserves. Pakistan has met most of the EFF programme targets thus far, it said, allowing for timely IMF disbursements. A relatively stable political environment has been instrumental in this regard, it added. The statement said that the IMF programme had boosted foreign reserves, which as of the end of last month had climbed to 25.3bn including the central banks gold holdings from a multi-year low of 6.7bn in December 2022. This is more than sufficient to cover the governments external principal payments of 16.4bn over the next 12 months, it said. SP also stated that it believed multilateral and bilateral funding, alongside continued access to commercial borrowing, would diversify Pakistans external funding options. Due to the governments commitment to structural reforms, it forecast the general government deficit at four per cent of the GDP for FY27, down from close to 8pc in the crisis years of fiscal years 2022 and 2023. It also noted that, although the State Bank of Pakistan (SBP) had tightened monetary conditions in April amid rising inflationary pressures from the Middle East conflict, domestic interest rates remained much lower than in previous years. Entrenched economic reforms will bring about a sustained period of steady growth and fiscal consolidation, the agency said. We anticipate sustained official financing will support Pakistan in meeting its external obligations and that the country will continue to roll over its commercial credit lines over the next 12 months. SP added that, if the countrys commitment to fiscal consolidation were to diminish and cause current external or fiscal indicators to deteriorate contrary to expectations it may lower its ratings. It would also view surging interest rates as a sign of domestic financing stress. On the other hand, the agency may raise its rating if fiscal and external metrics continue to strengthen structurally. It noted that this may happen if fiscal deficits narrow and government revenue continues to rise while financing costs moderate, with strong expenditure controls. Concurrently, improvements in Pakistans external indicators resulting in narrow net external debt falling below 100pc of current account receipts, and gross external financing needs declining to less than 100pc of the sum of current account receipts and usable reserves, may see the ratings raised, it said. Last month, British financial institution Barclays upgraded Pakistans dollar bonds to overweight after having lowered the rating the previous month, citing improved oil market prospects. In April, Fitch Ratings, one of the worlds top three agencies, affirmed Pakistans long-term foreign currency issuer default rating (IDR) at B- with a stable outlook. However, it highlighted that the countrys high exposure to the global energy price shock remained a key risk, particularly if it led to a sharp drop in foreign exchange reserves. Last year, SP raised Pakistans sovereign credit rating to B- from CCC and placed it on a stable outlook.

Source: Dawn News

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