What a sovereign credit rating is
A sovereign credit rating is an agency's opinion of how likely a government is to repay its debt in full and on time. It does not measure whether a country is a good place to live or invest. It covers only the government's ability and willingness to pay bondholders.
Ratings matter because many investors, such as pension funds, insurers and banks, have rules tied to them. A government's rating also tends to act as a ceiling for banks and companies in that country, so a change can affect borrowing costs across the whole economy.
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The main agencies
The ratings most cited in markets come from:
- S&P Global Ratings
- Moody's Investors Service
- Fitch Ratings
Each agency rates both foreign-currency debt and local-currency debt. The foreign-currency rating usually gets the most attention in a country like Pakistan, which borrows in US dollars and depends on external financing. To see Pakistan's current credit rating, read the latest press release on each agency's own website. This page does not quote a current rating because ratings change.
How the scales work
The agencies use letter scales that run from the strongest credit to default.
| Level | S&P and Fitch | Moody's |
|---|---|---|
| Highest quality | AAA | Aaa |
| Very strong | AA | Aa |
| Strong | A | A |
| Adequate | BBB | Baa |
| Speculative | BB | Ba |
| Highly speculative | B | B |
| Substantial risk | CCC | Caa |
| Near default | CC, C | Ca, C |
| Default | D (S&P), RD/D (Fitch) | — |
S&P and Fitch add "+" or "−" within a level. Moody's adds numeric modifiers. A Moody's rating and a Fitch rating for the same country are often close, but they do not have to match.
The key dividing line is investment grade (BBB− and above at S&P and Fitch, the lowest Baa level and above at Moody's) versus speculative grade, sometimes called "junk". Some funds are not allowed to hold bonds below investment grade. That is why a move across this line usually causes a larger market reaction than a move within a band.
Outlooks and watches
Alongside the rating, agencies publish:
- Outlook: positive, stable, negative or developing. This shows the likely direction over the medium term. An outlook is not a promise of a change.
- Watch or review: a shorter-term signal that the rating is being actively considered for change, often after a specific event such as a financing deal or a policy shift.
Markets often react to an outlook change almost as much as to the rating change itself.
What agencies look at
Agencies publish their sovereign methodologies. They typically assess:
- Economic strength: growth, income levels, diversification. See GDP explained.
- Institutional strength: policy credibility, governance, political stability.
- Fiscal position: debt levels, interest burden, budget deficits. See Fiscal policy.
- External position: current account, foreign reserves, external debt due. See Balance of payments.
- Monetary policy and inflation: see SBP rates and economy.
- Event risk: refinancing pressure, banking stress, geopolitical shocks.
Rating calendars and timing
For sovereigns rated under EU rules, the agencies publish a calendar of scheduled review dates at the start of each year. On these dates the agency may change the rating, change the outlook, or make no change. Actions on these sovereigns are usually released after European markets close on a Friday. Unscheduled actions can still happen in exceptional cases.
For other sovereigns, agencies may act at any time. They often act after a budget, an IMF programme decision, an election or a debt event. Use each agency's official calendar and press releases for dates, not social media posts. Our Economic calendar guide explains how to track scheduled events.
How markets typically react
Reactions depend on how much the market already expected the action.
- Government bonds: a downgrade tends to push yields up and prices down. An upgrade tends to do the opposite. See Bond yields and FX.
- Credit default swaps (CDS): these are insurance-like contracts on government default. Their spreads often move before the agency acts, because markets price risk continuously.
- Currency: a downgrade can weaken the local currency through capital outflows, especially in emerging markets. See Exchange rates.
- Equities: bank shares are often most sensitive, because banks hold large amounts of government debt.
Often the market has already moved before the announcement, so the reaction on the day can be small. Surprises, such as a move across the investment-grade line or a change of more than one notch, tend to cause sharper moves and wider spreads. Prices can gap when trading opens after a weekend announcement.
Leveraged forex and CFD trading around such events can lose money fast. Gaps can skip past stop-loss levels. Read our Risk management guide before trading through news. Pakistani readers should also read Law and regulators on the legal position of offshore trading platforms.
Frequent questions
What is the difference between a rating and an outlook?
The rating is the current opinion of credit risk. The outlook shows which way that opinion may move over the medium term.
Where can I find Pakistan's credit rating?
Read the latest sovereign press releases on the official S&P, Moody's and Fitch websites. Ratings change, so check the date of each release.
Why do the agencies sometimes disagree?
Each agency uses its own methodology and committee judgement. Their ratings for the same country can differ by a notch or more.
Does a downgrade always move the currency?
No. If the market expected the downgrade, much of the move may already be priced in. Unexpected actions tend to have more effect.
Is a rating a forecast of default?
No. It is a relative opinion of credit risk, not a prediction that a default will or will not happen. Terms used on this page are defined in the Trading glossary.
