Fitch maintains Pakistan at 'B-' under revised sovereign criteria

• Fitch affirms Pakistan’s long-term instruments at 'B-'.
• Agency assigns ‘RR4’ recovery rating and removes UCO.
• Debt trajectory and external liquidity pressures remain key risks.

KARACHI: Fitch Ratings has affirmed Pakistan's long-term instruments at 'B-', assigned an 'RR4' recovery rating and removed the sovereign from Under Criteria Observation (UCO) after applying revised sovereign rating criteria.

The agency said on Wednesday that the decision reflects the application of Fitch's updated Sovereign Rating Criteria, which came into force in September 2025 and now incorporates explicit recovery assumptions into sovereign debt ratings.

Fitch said the senior unsecured long-term debt ratings of Pakistan and The Pakistan Global Sukuk Programme Company Limited have been equalised with the country's long-term foreign-currency issuer default rating (IDR). 

The agency cited expectations of average recovery prospects in a default scenario, given Pakistan's high level of government debt and interest payments relative to revenue, and the absence of other factors that would warrant a notch above or below the IDR.

Fitch recalled it had upgraded Pakistan's long-term foreign-currency IDR to 'B-' with a stable outlook on April 15, 2025, from 'CCC+'.

Fitch said Pakistan has an ESG relevance score of 5 for political stability and rights, as well as for rule of law, institutional and regulatory quality, and control of corruption, with Pakistan ranked at the 22nd percentile, in line with other sovereigns.

The agency said risks to the rating include a failure to place government debt and debt-servicing indicators on a sustained downward trajectory, as well as renewed pressure on external liquidity, including from delays in reviews under the International Monetary Fund (IMF) programme or looser economic policy settings.

Factors that could support an upgrade include a material reduction in government debt and interest burdens, particularly through fiscal consolidation aligned with IMF commitments, alongside structural improvements in tax revenue.

A sustained easing of external financing risks, including stronger access to external funding and a durable rise in foreign-currency reserves beyond Fitch's forecasts, could also support positive rating action.