Pakistan has recorded one of the “sharpest drops” in sovereign default risk globally and now ranks as the second-best performer in the world, according to Credit Default Swap (CDS)-implied data reported by Bloomberg, adviser to the finance minister Khurram Schehzad said on Sunday.
A Credit Default Swap-implied probability estimates the likelihood that a borrower — such as a company or a country — will fail to repay its debt. This probability is derived from the market price of its CDS, which is a type of financial insurance investors buy to protect themselves against the risk of default, according to the International Monetary Fund[1] (IMF).
If the cost of a CDS drops, it means investors see the borrower as less risky. So, when Pakistan’s CDS-implied probability falls sharply, it indicates that global investors believe the country’s chances of defaulting on its debt have significantly decreased.
“As per the latest data posted by Bloomberg, Pakistan stands out globally as the 2nd most improved economy in terms of reduction in sovereign default risk, as measured by CDS-implied default probability globally,” Schehzad wrote in a post on X.
He added that the country stood second only to Turkiye in the global emerging market (EM) rankings in default risk reduction, as the country has recorded one of the sharpest drops in sovereign default risk globally over the last 15 months (from June 2024 to September 2025).
“Notably, Pakistan is the only country in the EM sample showing consistent quarterly improvement across the past year,” he wrote, adding that the country’s default probability has decreased by 2,200 basis points.
“This marks the sharpest decline among major EMs, ahead of South Africa (3 per cent), EI Salvador (2pc). In contrast, countries like Argentina, Egypt, Nigeria, and others have seen their default risks rise.”
Schehzad further said the sharp decline in the country’s risk signalled “strengthening investor confidence, underpinned by macroeconomic stabilisation, structural reforms, timely debt servicing[2], and staying the course with the International Monetary Fund.”
He also cited the recent positive ratings movements from global credit rating agencies like S&P Global[3], Fitch[4], and Moody’s[5] as a factor.
In a message to investors, Schehzad said. “Pakistan is steadily rebuilding market credibility, standing out as one of the most improved sovereign credit stories in the emerging market universe.”
Pakistan faced a prolonged economic crisis over the last few years, marked by critically low[6] foreign exchange reserves, an acute balance-of-payment crisis, and the looming risk of default[7] in 2023. The crisis was averted after the IMF released[8] a crucial loan tranche, while support from friendly countries, including China[9], the United Arab Emirates[10], and Saudi Arabia[11], also played a key role.
After averting default, Pakistan has undertaken tough IMF-prescribed reforms to stabilise its economy and bolster macroeconomic indicators.
References
- ^ International Monetary Fund (www.imf.org)
- ^ timely debt servicing (www.dawn.com)
- ^ S&P Global (www.dawn.com)
- ^ Fitch (www.dawn.com)
- ^ Moody’s (www.dawn.com)
- ^ critically low (www.dawn.com)
- ^ risk of default (www.dawn.com)
- ^ released (www.dawn.com)
- ^ China (www.dawn.com)
- ^ United Arab Emirates (www.dawn.com)
- ^ Saudi Arabia (www.dawn.com)