Pakistan Leads Emerging Markets in Sovereign Credit Improvement

Pakistan has distinguished itself as the most improved emerging market concerning sovereign credit risk, according to a recent assessment by Bloomberg Intelligence. This positive shift reflects enhanced macroeconomic stability, implementation of structural reforms, and effective collaboration with the International Monetary Fund (IMF).

Khurram Schehzad, Advisor to Pakistan’s Finance Minister, highlighted on social media platform X that the nation has achieved the most significant decrease in default risk worldwide over the past year. This accomplishment signals greater investor assurance and increasing financial trustworthiness.

Schehzad stated, “According to the latest data from Bloomberg Intelligence, Pakistan is recognized globally as the economy that has made the most progress in reducing sovereign default risk, based on Credit Default Swaps (CDS)-implied probability.”

He further noted, “Pakistan has topped global emerging market rankings in default risk reduction, demonstrating the largest global decrease in sovereign default risk over the last 12 months.”

Understanding Credit Default Swaps (CDS)

A CDS is a derivative that enables an investor to exchange their credit risk with another investor. The lender acquires a CDS from another investor to transfer the default risk, who consents to compensate them should the borrower default.

Referring to Bloomberg Intelligence data, Schehzad mentioned that the probability of default has decreased from 59% to 47%, representing an 11 percentage point improvement.

“This decrease is the most substantial among major emerging markets, surpassing Argentina (-7%), Tunisia (-4%), and Nigeria (-5%). Conversely, countries such as Turkey, Ecuador, Egypt, and Gabon have experienced an increase in their default risks.”

Schehzad believes that the reduction in Pakistan’s risk indicates revitalized investor confidence, driven by macroeconomic stabilization, structural reforms, successful engagement with the IMF, timely debt repayments, and improved credit outlooks from agencies such as S&P and Fitch.

“Pakistan is not only back on the map but is also advancing with stability, credibility, and reform at its core,” he concluded.