S&P Global Ratings has raised Pakistan's long-term sovereign credit rating to 'B' from 'B-', citing stronger institutional capacity and progress under an International Monetary Fund program that has helped rebuild foreign reserves and narrow fiscal deficits. The agency assigned a stable outlook, signaling confidence that the country's macroeconomic stabilization efforts will hold. Main Developments The upgrade, announced Wednesday, also lifted Pakistan's transfer and convertibility assessment to 'B' from 'B-', while affirming the short-term rating at 'B'. S&P noted that improved institutional stability over the last two years had enabled critical reforms under the IMF's Extended Fund Facility (EFF), a $7 billion program approved in September 2024. Foreign reserves have climbed to $25.3 billion as of late June—including central bank gold holdings—up from a multi-year low of $6.7 billion in December 2022. That buffer now covers $16.4 billion in external principal payments due over the next 12 months, according to the agency. Read also: 3 Key Details in Pakistan's $10bn US Stabilization Request S&P also forecasts the general government deficit to narrow to 4% of GDP for fiscal year 2027, down from nearly 8% during the crisis years of FY2022 and FY2023. The agency said multilateral and bilateral funding, combined with continued commercial borrowing, should diversify Pakistan's external funding options. Although the State Bank of Pakistan tightened monetary policy in April amid rising inflationary pressures from the Middle East conflict, S&P noted that domestic interest rates remain "much lower" than in previous years. "Entrenched economic reforms will bring about a sustained period of steady growth and fiscal consolidation," the agency stated. Background Pakistan's credit rating has seen a steady climb since mid-2024, when S&P upgraded it to 'B-' from 'CCC+' with a stable outlook. That earlier upgrade followed the approval of the IMF's EFF program, which was seen as critical for restoring macroeconomic stability and replenishing foreign reserves. The latest move comes after other positive signals from international financial institutions. In May, Barclays upgraded Pakistan's dollar bonds to "overweight," reversing a previous downgrade. In April, Fitch Ratings affirmed Pakistan's long-term foreign currency issuer default rating at 'B-' with a stable outlook, though it flagged high exposure to global energy price shocks as a key risk. Sovereign credit ratings are important to international investors because they quantify country risk and help coordinate investor expectations, according to the United Nations Development Programme. Why It Matters The upgrade signals to global markets that Pakistan's external position is improving and that its reform agenda—backed by the IMF—is gaining traction. A higher rating can lower borrowing costs for the government and make it easier to attract foreign investment, which is critical for a country that has faced repeated balance-of-payments crises. The stable outlook suggests S&P does not expect a near-term reversal, but the agency warned that any weakening of fiscal consolidation or deterioration in external indicators could trigger a downgrade. Conversely, continued structural improvements—such as narrower deficits and rising revenue—could lead to a further upgrade. What's Next S&P indicated it may raise Pakistan's rating again if fiscal and external metrics "continue to strengthen structurally." Specific triggers include net external debt falling below 100% of current account receipts and gross external financing needs declining to less than 100% of the sum of current account receipts and usable reserves. On the downside, the agency said it could lower the rating if the government's commitment to fiscal consolidation diminishes, leading to a deterioration in external or fiscal indicators. Surging interest rates would also be viewed as a sign of domestic financing stress. Pakistan must continue to meet IMF program targets to ensure timely disbursements and maintain investor confidence. The country's ability to manage energy price shocks and political stability will remain key factors in its credit trajectory.