Fitch Ratings has affirmed Pakistan’s long-term foreign-currency sovereign debt ratings at ‘B-‘ with a stable outlook, while assigning a new ‘RR4’ Recovery Rating and removing the ratings from Under Criteria Observation (UCO).
This action, dated January 21, 2026, stems from the full application of Fitch’s updated Sovereign Rating Criteria (effective September 2025), which for the first time incorporates explicit recovery assumptions into sovereign assessments.
Technical Update Under New Framework
The affirmation does not reflect a material change in Pakistan’s credit fundamentals but rather the completion of Fitch’s review process following the criteria overhaul. Many lower-rated sovereigns, including Pakistan, had been placed under UCO temporarily.
The ‘B-‘ level—unchanged since the upgrade from ‘CCC+’ in April 2025—signals material default risk with limited margins of safety, driven by persistently high public debt, elevated interest burdens relative to revenue, and ongoing fiscal vulnerabilities. However, the rating acknowledges progress in macroeconomic stabilization, including improved external buffers, higher foreign reserves, and adherence to IMF-supported reforms.
Implications for Investors and Recovery Prospects
The newly assigned ‘RR4’ Recovery Rating indicates average recovery expectations in a hypothetical default scenario, with historical recoveries typically in the 31-50% range for principal and interest. This provides greater transparency to bondholders and lenders about potential losses.
Overall, the action signals modest confidence in Pakistan’s trajectory: while risks tied to debt sustainability, external financing pressures, and reform continuity remain, the stable outlook and removal of UCO suggest no immediate downgrade pressure. Sustained fiscal consolidation and IMF program performance will be key to future rating momentum.