Pakistan Second in Global Default Risk Reduction

Pakistan has recorded one of the steepest declines in sovereign default risk globally, securing the second-best position worldwide, according to Credit Default Swap (CDS)-implied data highlighted by Finance Minister adviser Khurram Schehzad on Sunday. Over the 15 months from June 2024 to September 2025, Pakistan trailed only Turkiye in reducing default risk among emerging markets, as per Bloomberg data.

Schehzad emphasized that Pakistan is unique in the emerging market sample for achieving consistent quarterly improvements over the past year, slashing its default probability by 2,200 basis points. CDS-implied probabilities, which estimate the likelihood of a borrower—whether a company or country—failing to meet debt obligations, are derived from CDS contract prices used by investors for default protection, as per the International Monetary Fund (IMF). A lower CDS cost reflects reduced investor-perceived risk.

This marks the most significant risk reduction among major emerging markets, surpassing South Africa and El Salvador, while countries like Argentina, Egypt, and Nigeria saw rising default risks. Schehzad attributed the progress to growing investor confidence, driven by macroeconomic stabilization, structural reforms, prompt debt servicing, and strict adherence to the IMF programme.

Global credit rating agencies, including S&P Global, Fitch, and Moody’s, have upgraded their outlooks for Pakistan, further bolstering market trust. Schehzad noted that Pakistan is steadily rebuilding market credibility, emerging as a standout sovereign credit story in the emerging market landscape.

Pakistan weathered a severe economic crisis in recent years, grappling with critically low foreign exchange reserves, a dire balance-of-payments shortage, and a looming default risk in 2023. A critical IMF loan tranche, supplemented by support from China, the United Arab Emirates, and Saudi Arabia, stabilized the situation. Since then, Pakistan has implemented IMF-mandated reforms to strengthen economic stability and enhance macroeconomic indicators, paving the way for sustained recovery.