Pakistan Wants a B+ Credit Rating Next Year — Here’s What Has to Go Right

Pakistan has set its sights on the next rung of the global credit ladder. Speaking to Bloomberg TV on October 12 on the sidelines of the IMF and World Bank Annual Meetings in Bangkok, Finance Minister Muhammad Aurangzeb said the country’s sovereign rating could reach B-plus by the start of the next fiscal year — July 2027 — if the current improvement trend continues. A double-B rating, he added, remains the longer-term objective.

For ordinary Pakistanis, this is more than financial jargon. A sovereign credit rating is a report card on how likely the government is to repay its debts. The better the grade, the cheaper the country borrows abroad — and borrowing costs show up in the national budget, where they compete with spending on schools, hospitals and subsidies.

Where Pakistan’s rating stands today

Pakistan’s rating has already climbed three times since April 2025 and now sits in the single-B band across all three major agencies: B3 at Moody’s, B at S&P, and B- at Fitch. All three are still well below investment grade — the “B” band is speculative territory — but they are a long way from the near-default readings of a few years ago.

The most recent move came in July 2026, when S&P raised Pakistan to B with a stable outlook. The trajectory is clear: agencies are warming to Pakistan again, but each notch higher will demand more proof.

A B+ rating would move Pakistan closer to the double-B club — a league that unlocks a wider pool of institutional investors, many of whom cannot buy debt rated below certain thresholds.

What is driving the confidence

Aurangzeb’s optimism is not coming from nowhere. Several indicators have genuinely turned around:

• Record reserves. Foreign-exchange reserves touched a record $21.4 billion a few weeks ago, giving Pakistan roughly three months of import cover. Three years ago, reserves covered barely two weeks of imports — a level that had markets openly discussing default. Notably, the minister said much of the improvement came from buying dollars through the market rather than new borrowing.
• Growth is back. GDP growth recovered from a contraction of 0.3% three years ago to 2.6%, then 3.7% in the last fiscal year. The government expects growth to exceed 4% in the current fiscal year.
• Lighter interest burden. Interest payments consumed roughly 35% of government revenue in fiscal 2026, down from 49% a year earlier, according to Moody’s assessments. That is still an enormous share, but the direction is improving.
• Better tax collection. The government met its tax collection targets in the July–September quarter, and the tax-to-GDP ratio has moved into double digits — a modest but meaningful milestone for a country long plagued by a narrow tax base.

Pakistan’s return to global debt markets

Perhaps the strongest signal of renewed investor trust is that Pakistan is selling bonds to the world again. After a four-year absence from international capital markets, the government raised $750 million through a private bond issuance in April 2026, followed by a $3 billion Eurobond sale in September.

The Eurobond sale drew bids worth twice the amount on offer, with investors from Asia, the Middle East, Europe and the United States. That two-times oversubscription tells its own story: global fund managers are willing to lend to Pakistan again.

The financing menu is also diversifying:

Aurangzeb also outlined a medium-term debt strategy: replacing part of Pakistan’s short-term external debt with longer-term obligations over the next two to three years, cutting refinancing risk without increasing the total external debt stock. He added that the government would not rush into fresh international borrowing this fiscal year, saying Pakistan did not need it to meet its current financing requirements.

What could still go wrong

A B+ rating is a target, not a guarantee — and the agencies will decide on their own timetables. Several risks stand in the way:

External financing is still huge

Moody’s estimates Pakistan needs about $21 billion in external financing in fiscal 2027 and around $30 billion in fiscal 2028. A large share of that is expected to be rolled over by bilateral partners, but the country cannot afford any disruption to market access.

The IMF programme must stay on track

Every recent upgrade has been tied to the IMF-backed reform programme. Missed reviews, stalled reforms or political turbulence could freeze progress — or worse.

Energy and geopolitical shocks

The minister himself flagged the Middle East conflict as a risk to inflation and growth. Pakistan has managed fuel procurement without shortages so far, and October’s crude and gas requirements are already arranged, but a prolonged regional crisis would force difficult choices.

Reform fatigue at home

Sustained reform implementation — especially broadening the tax base and cutting untargeted subsidies — is politically costly. Agencies will be watching whether Pakistan stays the course beyond the current fiscal year.

Why this matters for ordinary Pakistanis

Credit ratings feel abstract, but their effects are concrete. When Pakistan borrows more cheaply abroad, the government spends less on interest and has more room for development — or less pressure to raise fuel levies, power tariffs and taxes.

A B+ rating would also let Pakistani companies and banks borrow internationally at better rates, feeding investment and jobs. If the upgrade stalls, the debt burden stays heavy and eventually lands on households.