The rating actions reflect the application of Fitch’s new Sovereign Rating Criteria, effective September 2025, and the inclusion of recovery assumptions into sovereign debt ratings for the first time.

Fitch’s credit rating scale for issuers and issues is expressed using the categories ‘AAA’ to ‘BBB’ (investment grade) and ‘BB’ to ‘D’ (speculative grade), with an additional +/- for AA through CCC levels indicating relative differences of probability of default or recovery for issues.

The terms “investment grade” and “speculative grade” are market conventions and do not imply any recommendation or endorsement of a specific security for investment purposes. Investment-grade categories indicate relatively low to moderate credit risk, while ratings in the speculative categories signal either a higher level of credit risk or that a default has already occurred.

Key rating drivers

The senior unsecured long-term debt ratings of Pakistan and The Pakistan Global Sukuk Programme Company Limited are equalised with Pakistan’s Long-Term Foreign-Currency Issuer Default Rating (IDR), reflecting “Fitch’s expectation of average recovery prospects in a default scenario, given Pakistan’s high levels of general government debt and interest payments as a percentage of revenue, and the absence of any other clearly identifiable criteria factors that would cause us to notch the debt ratings up or down from the IDR”.

On April 15, 2025, Fitch upgraded Pakistan’s Long-Term Foreign-Currency IDR to B- with a stable outlook, from CCC+.

Pakistan has an ESG Relevance Score of 5 for political stability and rights and for the rule of law, institutional and regulatory quality and control of corruption, as is the case for all sovereigns.

 “These scores reflect the high weight that World Bank Governance Indicators (WBGI) have in our proprietary Sovereign Rating Model. Pakistan has a WBGI ranking at the 22nd percentile,” Fitch said.

Rating sensitivities

Factors that could, individually or collectively, lead to negative rating action/downgrade include failure to keep government debt and debt-servicing metrics on a firm downward path, and renewed deterioration in external liquidity conditions, for example, from delays in International Monetary Fund (IMF) programme reviews or insufficiently tight economic policy settings.

Meanwhile, factors that could, individually or collectively, lead to positive rating action/upgrade include significant declines in government debt and debt-servicing burdens, for example, due to the implementation of fiscal consolidation plans in line with IMF programme commitments, leading to structural improvements in tax revenue generation.

Further significant easing of external financing risks, including evidence of greater ability to source external funding and a sustained recovery in foreign-currency reserves beyond Fitch’s forecasts could also lead to a positive rating action.