Improved rating

S&P GLOBAL’S decision to upgrade Pakistan’s long-term sovereign credit rating to ‘B’ with a stable outlook from ‘B-’ is welcome news for an economy that has been on the decline due to persistent balance-of-payments pressures for the last four years. The upgrade, after nine years, reflects an improvement in our external position, fiscal management and ability to implement reforms under the IMF programme. It should also make it easier if not cheaper for the country to access international capital. But the rating upgrade is not a clean bill of economic health. If anything, it carries a warning that Pakistan’s recent stability hinges on maintaining the discipline that produced it. S&P has based its decision largely on improved institutional stability and the implementation of IMF reforms. The ratings agency also expects continued official financing and the rollover of commercial credit lines to help Pakistan meet its external obligations.

The upgrade, therefore, is as much an assessment of underlying economic weaknesses as it is a vote of confidence in policy direction under the IMF. This matters. Our history shows that external financing can buy time, but not produce lasting economic stability on its own. Short spurts of stabilisation and growth have often been followed by widening deficits, rising imports and renewed borrowing once the immediate crisis recedes. The result is a familiar cycle: stabilisation, consumption-led growth and, eventually, another balance-of-payments crisis. There are already signs that Pakistan is preparing for a post-IMF environment to push for faster growth. This is where the danger lies. The easier it is for Pakistan to borrow, the weaker the immediate political incentive to undertake difficult reforms becomes. The discipline imposed by an empty reserve account and an imminent default risk is powerful, if painful. Once that pressure eases, governments are tempted to postpone politically costly reforms in favour of measures that generate quicker political dividends. The government must not give in to this temptation. The improved stability and rating upgrade should be used to institutionalise reforms, attract long-term investment, expand exports and boost productive capacity. Improved credibility must support sustainable economic change, not cheaper borrowing to finance consumption. That is the real test.

Published in Dawn, July 24th, 2026

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