Pakistan Country Risk Rating

Pakistan’s overall rating remains at high. Domestically, political tensions remain with former Prime Minister Imran Khan’s imprisonment and 17-year Toshakhana-II sentence have not eroded his popularity – though recent reports suggest his health is deteriorating. Pakistan Tehreek-e-Insaf (PTI) protests persist, occasionally paralyzing infrastructure and triggering violent clashes. Tensions in Balochistan also remain. This keeps the political violence rating at very high. The PML(N)-PPP coalition under Prime Minister Shehbaz Sharif governs with limited cohesion, constrained by IMF conditionality and internal distrust. The military’s expanded influence following 2025 India tensions also raises the probability of further political intervention. Though the government is considering splitting the four major regions into many more provinces this reflects weakness in the current system, rather than a leap forward. The only good news is on the external front, with Pakistan agreeing a mutual defence commitment with Saudi Arabia and Turkiye. Meanwhile, the risk of a war with India in the next 6-12 months is moderately high, due to severe tensions on a number of issues. Any military escalation, should it materialise, is expected to be short in duration, a matter of days rather than a prolonged conflict. On the economic front, the IMF projects GDP growth at 3.6% in 2026, but the energy shock from the Iran war is forecast to boost 2026 inflation to 7.2%. The slow fiscal consolidation is also providing rewards with the IMF projecting a fall to 70.1% of GDP in 2026. The key weakness remains the low level of FX reserves, which is causing an ongoing dependency on the IMF and also China and Saudi Arabia. To bring more resilience, Pakistan is trying to leverage its diplomatic help in the Iran war, with a request to the U.S. to have an Argentina-style stabilisation fund of USD10bln – however it is unclear whether the U.S. will agree.