By Sumavaya Iqbal 
Pakistan has recorded one of the sharpest declines in sovereign default risk globally, securing the second spot among emerging market economies based on Credit Default Swap (CDS)-implied probability, according to data cited by the country’s financial adviser Khurram Schehzad and compiled by Bloomberg.
A Credit Default Swap (CDS)-implied probability measures a market’s perception of the likelihood that a borrower may default on debt, derived from the spread of their CDS contracts. In Pakistan’s case, this indicator shows a significant improvement over the past 15 months, reflecting growing investor confidence and strengthened fiscal management.
Schehzad revealed that Pakistan’s default probability has dropped by nearly 22 percent — or 2,200 basis points — from June 2024 to September 2025. He noted that Pakistan now ranks second only to Turkiye in the global emerging markets index, demonstrating sustained improvement across four consecutive quarters.
“Pakistan is the only country in the EM sample showing consistent quarterly improvement across the past year,” Schehzad shared on X. “This remarkable performance signals growing stability and renewed investor trust.”
The improvement follows the government’s adherence to a $7 billion International Monetary Fund (IMF) program, which has played a central role in restoring macroeconomic discipline and ensuring fiscal sustainability. Schehzad credited the reduction in default risk to ongoing structural reforms, timely debt repayments, and credit rating upgrades by leading global agencies such as S&P, Moody’s, and Fitch.
He further emphasized that the steady downward trend in default probability sends a strong signal to international investors, underscoring Pakistan’s emergence as one of the most improved credit stories in the global market. “Pakistan is steadily rebuilding its market credibility,” he added.
Meanwhile, the IMF has projected that Pakistan’s economy will remain stable despite recent flood incidents that caused limited damage in select regions. The Fund believes that the floods will not significantly affect the country’s GDP growth or tax revenue targets this fiscal year.
During a recent meeting with Finance Minister Senator Muhammad Aurangzeb, IMF officials noted that, apart from Punjab, no province has reported substantial economic disruptions. Provincial governments of Sindh, Balochistan, and Khyber-Pakhtunkhwa presented their initial assessments, confirming that flood-related losses were localized and manageable.
The IMF also urged Pakistan’s Federal Board of Revenue (FBR) to accelerate progress under its ongoing transformation plan, which was approved by Prime Minister Shehbaz Sharif last year. The initiative — supported by Rs55 billion in funding — aims to modernize tax administration, enhance transparency, and improve overall revenue collection.
With macroeconomic reforms taking hold and confidence returning to the market, Pakistan’s latest CDS rankings highlight its growing resilience and fiscal discipline — marking a crucial milestone in its journey toward sustainable economic recovery.