South Asia

S&P upgrades Pakistan credit rating to B- from CCC+

Friday July 25, 2025 2:45 pm

ECONMYNEXT – S&P Global Ratings said it is upgrading Pakistan’s sovereign rating from CCC+ to B- on improved budgets and assurances that the country will be able to roll-over maturing debt.

The outlook was stable at the new level.

“The stable outlook reflects our expectations that continued economic recovery and government efforts to enhance revenue will stabilize fiscal and debt metrics,” S&P said.

“We also expect that sustained official financing will support Pakistan in meeting its external obligations, and that the country will continue to roll over its commercial credit lines over the next 12 months.

“Downward pressure would emerge if financial support from key bilateral and multilateral partners quickly erodes.”

The statement is reproduced below.

Rating Action

On July 24, 2025, S&P Global Ratings raised its long-term sovereign credit ratings on Pakistan to ‘B-‘ from ‘CCC+’, and its short-term ratings to ‘B’ from ‘C’. The outlook on the long-term rating is stable.

At the same time, we revised our transfer & convertibility assessment to ‘B-‘ from ‘CCC+’.

Outlook

The stable outlook reflects our expectations that continued economic recovery and government efforts to enhance revenue will stabilize fiscal and debt metrics. We also expect that sustained official financing will support Pakistan in meeting its external obligations, and that the country will continue to roll over its commercial credit lines over the next 12 months.

Downside scenario

We may lower our ratings if Pakistan’s external or fiscal indicators deteriorate well beyond their current levels. Downward pressure would emerge if financial support from key bilateral and multilateral partners quickly erodes, or usable foreign exchange reserves fall substantially to levels indicating difficulties in servicing its external debt obligations. Furthermore, should interest rates surge again and materially add to the government’s already-heavy debt servicing burden, we would view that as an indication of domestic financing stress.

Upside scenario

We may raise our ratings if institutional and political settings in Pakistan improve such that entrenched economic reforms bring about a sustained period of steady growth and fiscal consolidation. This will result in the economy outperforming our expectations, strengthening the country’s fiscal and external positions more quickly than forecast.

Rationale

The ratings upgrade reflects our view that Pakistan is now less reliant upon favorable macroeconomic and financial developments to meet its obligations. Pakistan has replenished its foreign reserves over the last 12 months and near-term default risks have abated.

The passage of the IMF’s Extended Fund Facility (EFF) US$7 billion program for Pakistan in September 2024 has been instrumental in restoring much needed macroeconomic stability to the country. The IMF program, along with strong support from bilateral partners, has boosted foreign reserves considerably. At the time of our downgrade of Pakistan to ‘CCC+’ in December 2022, foreign reserves had plummeted to a multi-year low of US$6.7 billion. As of July 4, 2025, foreign reserves (including the central bank’s gold holdings) have climbed to US$20.5 billion, sufficient to cover the government’s external principal and interest payments of US$13.4 billion for fiscal 2026 (July 1, 2025, to June 30, 2026).

Pakistan’s current account posted a surplus in fiscal 2025, the first time in 14 years. The small annual surplus of 0.5% of GDP was driven by record-high remittances totaling US$39 billion (9.5% of GDP) over the period. In all, these developments have strengthened Pakistan’s external metrics and alleviated near-term external stress.

The IMF program-related reforms have significantly increased the government’s tax revenues by as much as 3% of GDP in the last 12 months. Alongside expenditure controls, we forecast general government deficit to decrease to 5.1% of GDP in fiscal 2026 from 7.9% in fiscal 2022.

With inflation having subsided from a peak of 29% in fiscal 2023, we envisage Consumer Price Index (CPI) growth to average 6.5% over the next two to three years. As a result, monetary conditions will further ease and with lower domestic interest rates, the government’s interest payments will decrease to average 41% of revenue over the next three years from a peak of above 60% in fiscal 2024. Nevertheless, Pakistan’s interest servicing-to-revenue ratio remains one of the highest globally among rated sovereigns.

Institutional and economic profile: Economic growth to resume on easing inflation but against a challenging backdrop of fractious politics.

• Pakistan’s economy grew in fiscal 2025 for a second consecutive year, following a contraction in fiscal 2023.
• Alleviated inflationary pressures alongside IMF program reforms will support growth, which we project at 3.6% in fiscal 2026.
• The government’s reform efforts may face volatile social and political resistance toward austerity and tax enhancing measures.

Pakistan’s economy grew 2.7% in fiscal 2025 on the back of industry and services sector growth. This was counterbalanced by underwhelming agriculture sector growth, a critical sector accounting for 24% of economic output, affected by low crop yields from adverse weather conditions. We project GDP growth to improve in the current fiscal year to 3.6%, as reform measures and decline in prices lift economic activity.

Inflationary pressures have subsided notably over the last year, thereby supporting the fiscal consolidation measures of the government. CPI growth came in at 4.5% for fiscal 2025, substantially lower than the 23.4% in the previous fiscal year.

The Pakistani rupee’s depreciation against the U.S. dollar in recent years has contributed to a sustained stagnation in the country’s nominal GDP per capita. That said, the rupee has stabilized in the last fiscal year. Coupled with rising real growth, we forecast GDP per capita will rise just above US$2,000 in fiscal 2027.

Pakistan and the IMF agreed to an EFF that approved financial support of US$7 billion in September 2024 over 37 months. The performance requirements of the program are a continuation and extension of those set in the US$3 billion Stand-By-Arrangement with the IMF, which the government completed in April 2024.

The IMF completed the first review of Pakistan’s EFF-tied economic reform program in May 2025. The meeting of the program targets facilitated a disbursement of US$1 billion, bringing total disbursement to date to US$2.1 billion. At the same time, the IMF approved the Resilience and Sustainability Facility (RSF) to Pakistan, with access of US$1.4 billion. The EFF and RSF run concurrently over 37 months and give the country a total package of US$8.4 billion. In our view, these disbursements, in combination with new and rollover of deposits from bilateral partners, have helped to rebuild Pakistan’s foreign exchange reserves from critical lows.

We expect political uncertainty to remain high owing to a fractious political environment. Formed in the aftermath of the February 2024 general elections, the coalition government led by the Pakistan Muslim League-Nawaz (PML-N) party has so far demonstrated its ability to navigate the necessary reform implementation under the IMF program without significant social unrest. The willingness of policymakers to stay the course of expenditure controls while making continued enhancements to the tax revenue base will be critical in meeting the remaining targets set out in the EFF.

Pakistani politics has been in a state of flux since the ouster of former Prime Minister Imran Khan of the Pakistan Tehreek-e-Insaf party in a parliamentary no-confidence motion in April 2022. The political turmoil hampered the government’s efforts to deal with economic challenges previously, damaging the sovereign credit metrics. We believe a stable political environment in Pakistan is an important precondition to further improvements in the government’s creditworthiness.

The ratings on Pakistan remain constrained by elevated domestic and external security risks. The country’s security situation has improved since the early 2010s, but the potential to deteriorate remains. Border tensions with India, as evident in the recent outbreak of hostilities in the wake of the Pahalgam terrorist attack in May 2025, can raise the specter of miscalculations and accidental clashes that could escalate well beyond the intentions of both sides. Such a scenario would materially worsen credit risks.

Flexibility and performance profile: Fiscal settings have benefited from tax reforms alongside rebuilding of external buffers from foreign inflows.

• Bilateral and multilateral aid has shored up usable foreign exchange reserves, following a steep decline in fiscal 2023.
• Continued support and rollovers of existing credit facilities will be important to maintain the accumulation of external buffers.
• Interest costs continue to consume an enormous proportion of government receipts.

The pressures on Pakistan’s fiscal and external positions have lessened, a contrast from the conditions in fiscal years 2023 and 2022. Under the IMF program reforms, the government has implemented a series of measures to expand the tax base. This includes tax initiatives like the Agriculture Income Tax and the widening of the tax net to bring in more registrants in the retail sector. These efforts have led to a significant increase of government revenue by three percentage points of GDP over the last 12 months. General government revenue to GDP reached 15.7% in fiscal 2025, an all-time high, from 12.6% the year before. As a result, the fiscal deficit has narrowed to 5.6% of GDP in fiscal 2025 from 7.9% in fiscal 2022.

We believe the government will face political and social pushback in trimming its deficits any quicker. In the recently passed fiscal 2026 budget, the government has set a target to cut the budget deficit to 3.9% of GDP. We forecast the general government’s fiscal 2026 deficit to decline less steeply to 5.1%. As a result, Pakistan’s average annual change in net general government debt will average 5.1% of GDP from fiscal 2025 through to fiscal 2028.

Pakistan’s net debt stock is likely to remain fairly high at over 60% of GDP. But the main pressure on debt sustainability is the extremely high interest expense relative to fiscal revenue. This is a major constraint on our assessment of the government’s debt burden. That said, we anticipate lower funding costs and a stable rupee to gradually bring down this ratio to 45.8% in the current fiscal year from 49% the prior year.

The government’s hefty interest burden arose from historically high domestic interest rates. The State Bank of Pakistan (SBP) undertook aggressive monetary policy tightening to tame surging inflation of over 20% annually during fiscal years 2023 and 2024. With inflationary expectations better anchored, the SBP has reduced the policy rate by 1,100 basis points since June 2024 to the current 11%. Consequently, the government, which had eschewed long-term debt issuance during the period of high rates, started to reprofile its debt stock from short-term paper to longer dated bonds.

Inflows of external financial aid helped stabilize the country’s external position in fiscal 2025. Support from bilateral creditors, including China, Saudi Arabia, United Arab Emirates, and Kuwait has been critical to Pakistan to meet its high external financing needs. The total support from these four partners in the form of central bank deposits and swaps reached US$16.8 billion as of end-fiscal 2025; we add this sum to the government’s total stock of debt. Unless there is a sustained period of strong balance-of-payments performance to add to foreign reserves, we envisage Pakistan to have to continue to rely heavily on the renewal of existing bilateral credit and commercial loan facilities, as well as on the potential extension of new ones.

The progress of the IMF program had drawn in other multilateral and bilateral financiers to resume their aid to Pakistan. In January 2025, the World Bank approved a 10-year Country Partnership Framework with Pakistan, committing US$20 billion in funding. Nevertheless, additional deposits or loans from external partners would further add to Pakistan’s substantial narrow net external debt position. We forecast it to reach 128% of current account receipts by the end of this fiscal year.

Pakistan’s current account recorded a small surplus of 0.5% of GDP in fiscal 2025, underpinned by robust growth in remittances. This is against the backdrop of elevated current account deficits in the last few years, particularly the high shortfall of 4.7% of GDP in fiscal 2022. Despite our expectation of current account deficits to be modest at an average 0.8% of GDP from fiscal 2026 through fiscal 2028, Pakistan’s continued external debt maturities will place sustained pressure on its foreign exchange reserves, absent considerable net new funding. Consequently, gross external financing needs, as well as net external indebtedness, will remain high over the next one to two years.

Pakistan’s banking system is modest by international standards. Total bank assets comprise about 54% of GDP. S&P Global Ratings does not publish a Banking Industry Country Risk Assessment on Pakistan.

Despite the banking system’s large exposure to the sovereign, it is, in our opinion, stable, liquid, and adequately capitalized. Combining our view of Pakistan’s government-related entities and its financial system, we assess the country’s contingent fiscal risks as limited. That said, Pakistan’s banking system bears an outsized exposure to the sovereign, which accounts for more than half of scheduled banks’ total outstanding credit.

In 2022, Pakistan amended the SBP Act, which affords additional independence to the central bank, in line with IMF program objectives. We believe the SBP’s autonomy and performance have strengthened since the establishment of a monetary policy committee for rate-setting in January 2016. Total SBP holdings of government securities have fallen slightly over the past three years as the central bank has stopped providing new financing to the government. This has strengthened the central bank’s capacity to focus on fighting inflation, in our view.
(Colombo/Jul25/2025)

Business

Sri Lanka’s Sampath Bank, David Pieris Automobiles launch vehicle financing partnership

Tuesday October 20, 2026 11:46 am

ECONOMYNEXT – Sri Lanka’s Sampath Bank and David Pieris Automobiles are partnering to offer customers preferential vehicle financing and ownership benefits.

Under the collaboration, customers purchasing vehicles through David Pieris Automobiles will receive a 0.5 percentage point reduction on published vehicle lease interest rates, subject to terms and conditions.

They will also have access to vehicle insurance premium loans with no interest if settled within two months, along with Sampath Bank credit cards that carry no joining fee and offer 0% interest instalment plans for insurance payments for up to 12 months.

David Pieris Automobiles, the four-wheeler sales arm of the David Pieris Group and distributor of GWM brands including HAVAL, TANK and ORA, as well as BAIC models, will provide additional customer benefits including free vehicle registration and a third labour-free vehicle service.

The two companies said the partnership reflects a shared commitment to meeting evolving mobility needs through accessible financing and automotive solutions. (Colombo/Oct20/2026)

Logistics

Sri Lanka’s Access Engineering drops S Asia logistics hub project, expects Rs1.45bn recovery

Tuesday October 20, 2026 10:05 am

ECONOMYNEXT — Sri Lanka’s Access Engineering PLC said shareholders have agreed not to proceed with the South Asia Commercial and Logistics Hub project, following an initial corporate disclosure made in April 2023.

The parties have agreed to enter into a settlement agreement for the orderly termination of the project and all related agreements.

Under the planned settlement arrangements, Access Engineering anticipates recovering approximately 1.453 billion rupees from its total investment of roughly 1.762 billion rupees.

“The decision was made in view of changes in external circumstances, including adjustments to the project’s implementation environment and timetable, together with the respective commercial considerations of the parties,” Managing Director Rohana Fernando said in a filing to the Colombo Stock Exchange.

Access Engineering holds a 15 percent shareholding in South Asia Commercial and Logistics Hub Limited.

Under the settlement terms, the company expects to receive 3.286 million US dollars (equivalent to approximately 1.087 billion rupees) as its proportionate share of the settlement refund.

It will also receive approximately 365 million rupees representing its share of available distributable funds, based on an indicative exchange rate of 331 rupees per US dollar.

In its audited consolidated financial statements for the year ended March 31, 2026, the group had already recognized its share of losses amounting to approximately 387 million rupees, leaving the carrying value of the investment at roughly 1.38 billion rupees.

“Based on the anticipated settlement proceeds and the carrying value of the investment, no further material financial loss is presently anticipated in the Group’s consolidated financial statements,” Fernando said.

However, because the investment is carried at cost in the company’s separate financial statements, Access Engineering expects to recognize a company-level loss of approximately 310 million rupees.

The company noted that the final figures remain subject to the exchange rates applicable on actual transaction or payment dates, final settlement arrangements, and applicable accounting adjustments. (Colombo/Oct20/2026)

Bonds & Forex

Sri Lanka rupee weaker at 331.75/90 to US dollar spot, bond yields higher

Tuesday October 20, 2026 9:54 am

ECONOMYNEXT – Sri Lanka’s rupee was quoted at 331.75/90 to the US dollar in the spot market on Tuesday, weaker from 331.60/70 the previous day, while bond yields were quoted higher, dealers said.

A bond maturing on 15.09.2029 was quoted at 11.10/30 percent, up from 11.10/25 percent.

A bond maturing on 01.08.2030 was quoted at 11.65/70 percent, up from 11.50/60 percent.

A bond maturing on 01.12.2031 was quoted at 11.90/12.00 percent.

A bond maturing on 15.01.2033 was quoted at 12.25/35 percent, up from 12.25/30 percent.

A bond maturing on 15.06.2034 was quoted at 12.50/55 percent, up from 12.40/50 percent.

The telegraphic transfer rate for the dollar was 327.10 buying, 336.10 selling; the euro was 364.3987 buying, 378.1795 selling; pound was 434.5676 buying, 448.6760 selling.

On the Colombo Stock Exchange the All Share Price Index was down 0.09 percent, or 18.32 points, at 20,041; while the S&P SL20 was broadly unchanged at 5,701. (Colombo/Oct20/2026)

World

Global financial markets face rising risks from AI, bond yields, and cyberattacks: IMF

Monday October 19, 2026 11:55 pm

Financial markets have remained resilient amid solid economic growth and strong corporate earnings, while financial conditions have been relatively accommodative. However, there is no room for complacency.

Three key risks have been increasing, each with the potential for broader implications: an artificial intelligence-driven market correction, a sharper rise in sovereign bond yields, and cyberattacks.

Vulnerabilities beneath the surface could determine how damaging the manifestation of these risks would be, as we detail in the latest Global Financial Stability Report. An AI market correction could trigger broad deleveraging across asset classes. A bond yield shock could reprice assets and reduce the collateral value of bonds in financial transactions. A cyberattack could disrupt critical operations and weaken confidence. High borrowing, scarce liquidity, and tighter links across markets could amplify the impact into broader financial stress.

Heavy reliance on AI

AI has become an important support for the global economy and financial markets, as discussed in the World Economic Outlook. Investment in data centers, semiconductors, and related infrastructure has spurred economic activity, while companies driving the AI boom have delivered exceptional earnings growth. But faltering AI investment and profitability could challenge optimistic expectations and trigger a correction in asset prices linked to the AI industry.

Growing leverage could be a catalyst for such a correction. Hyperscalers, as the largest data center operators are known, are borrowing more and more, while investors have been leveraging to invest in AI stocks. Circular financing arrangements in the AI sector, involving equity and debt flows between AI firms, suggest that stress at key companies receiving investment could lower revenue forecasts and investment valuations, which in turn would weaken the value of the accumulated debt in those deals. Our review of 14 such transactions since 2023 found about $300 billion in equity investments and $650 billion in debt, in exchange for $1.4 trillion in future revenue commitments.

Government debt risks

Sovereign bond yields have risen amid renewed inflation pressures from higher energy prices, fiscal concerns, and, in some cases, stronger-than-expected economic growth. It may be the case that bond yields are moving back toward the levels seen before the global financial crisis, when growth and inflation were higher than in the 2010s. At the same time, risks of adverse feedback loops related to higher fiscal imbalances and leveraged trades in bond markets are increasing. In addition, as central banks have been reducing their balance sheets, greater reliance on price-sensitive investors could contribute to further yield volatility.

As government bonds underpin the global financial system, the consequences of higher sovereign yields could extend well beyond public debt. Higher yields could further raise discount rates and depress valuations across other assets, including those that are AI-related, while reducing the value of bonds used as collateral.

Cyberattacks

As finance becomes more digital and interconnected, cyber disruptions have emerged as a growing source of systemic risk. A major incident could disrupt payments, trading, access to deposits, or other critical financial services. The danger is particularly acute if an attack affects a major financial institution, payment system, cloud provider, or software platform, allowing disruption to spread through an increasingly interconnected financial system.

Importantly, cyber threats can be hard to contain. In more than 70 percent of reported cases so far this year, software providers had almost no time to patch vulnerabilities before attackers exploited them. That’s more than double the share in 2021, when providers typically had close to 300 days to fix vulnerabilities. Frontier AI models could accelerate both attacks and defenses, increasing the importance of cyber resilience, incident reporting, crisis preparedness, and oversight of critical third-party providers.

Financial fault lines

Underlying vulnerabilities could amplify the impact of these three risks into systemic events.

Although global banks, the core of the financial system, remain resilient overall under our adverse stress scenario, there could be weak links. Banks with 22 percent of global banking assets would emerge with post-stress capital ratios below regulatory limits, an increase from 18 percent a year ago. Moreover, the links of such banks with nonbank financial intermediaries are deepening, creating additional channels for transmitting stress.

Beyond banking, pension funds and insurers have steadily increased allocations to illiquid assets and derivatives, while relying more heavily on the same asset managers. This increases the risk that at a time of stress, they could face sudden liquidity needs through margin calls and could react in similar ways—for example by selling the same assets—amplifying market moves. Some of these institutions also hold illiquid private credit, another potential amplification channel.

At the same time, as borrowers have become more leveraged, some direct-lending funds have committed to provide funding on demand. If financial conditions tighten, borrowers could draw on those facilities just as the funds that provide them could be facing their own liquidity pressures. Such dynamics could further reduce credit to companies that need it most, with consequences for the broader economy.

In emerging and developing economies, bond yields have also risen, although their spreads compared with their advanced economy peers remain fairly compressed. However, recent global shocks have diminished buffers, thereby increasing external vulnerabilities and reducing their ability to absorb stress.

Policies to safeguard

With government debt high, inflation pressures re-emerging, and higher borrowing costs, policymakers have much less room to support the economy following shocks than in the past.

We see three priorities for action:

-Debt needs to be put on a sustainable path.
– Leverage and liquidity mismatches in AI, private credit, and other nonbank financial sectors should be limited, including through sectoral capital and concentration requirements on banks’ exposures to these sectors.
– Cyber defense capabilities need to be strengthened, for example through better incident reporting and resilience testing among financial institutions.
Emerging and developing economies should also rebuild buffers while financial conditions remain accommodative. Proactive policies are the best way to prepare as risks are rising.

Bonds & Forex

Sri Lanka rupee closes weaker at 331.60/70 to US dollar spot, bond yields higher

Monday October 19, 2026 5:24 pm

ECONOMYNEXT – Sri Lanka’s rupee closed at 331.60/770 to the US dollar in the spot market on Monday, weaker from 331.25/35 the previous day, while bond yields closed higher, dealers said.

A bond maturing on 15.09.2029 closed at 11.10/25 percent, up from 11.05/15 percent.

A bond maturing on 01.08.2030 closed at 11.50/60 percent, up from 11.40/50 percent.

A bond maturing on 15.10.2030 closed at 11.65/75 percent, up from 11.50/55 percent.

A bond maturing on 01.02.2031 closed at 11.75/80 percent, up from 11.55/65 percent.

A bond maturing on 15.12.2032 closed at 11.90/12.10 percent, up from 11.80/90 percent.

A bond maturing on 15.01.2033 closed at 12.25/30 percent, up from 11.95/12.05 percent.

A bond maturing on 15.06.2034 closed at 12.40/50 percent, up from 12.20/25 percent. (Colombo/Oct19/2026)

Markets

Sri Lanka shares close down on Monday; ASPI falls 0.62-pct

Monday October 19, 2026 3:28 pm

ECONOMYNEXT – Sri Lanka’s Colombo Stock Exchange closed down on Monday, CSE data showed, with the benchmark All Share Price Index falling 0.62 percent.

The ASPI was down 125.63 points at 20,059.42, while the more liquid S&P SL20 was down 0.51 percent, or 29.36 points, at 5,709.47.

Raynal Wickremeratne, Head of Research and Strategy at NDB Securities, noted that market turnover remained low, with local sentiment reflecting the recent volatility and declines across regional Asian markets.

Positive contributors to the ASPI were Watawala Plantations (up 2.43 percent at 46.40 rupees), Richard Pieris and Company (up 1.54 percent at 26.40 rupees), Ceylon Cold Stores (up 0.62 percent at 122.00 rupees), and Commercial Bank of Ceylon (up 0.13 percent at 198.25 rupees).

Dialog Axiata (down 2.27 percent at 43.00 rupees), Overseas Realty (Ceylon) (down 2.00 percent at 49.00 rupees), John Keells Holdings (down 1.67 percent at 17.70 rupees), Hemas Holdings (down 1.29 percent at 30.50 rupees), and Hatton National Bank (down 0.79 percent at 375.00 rupees) were top negative contributors.

Market turnover was 680.32 million rupees. The banking sector led turnover with 188.71 million rupees, followed by capital goods with 177.78 million rupees.

Crossings were recorded in Seylan Bank for 98 million rupees and John Keells Holdings for 26 million rupees. (Colombo/Oct19/2026)