Moody’s Ratings has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings from Caa3 to Caa2. Additionally, the rating for the senior unsecured Medium-Term Note (MTN) program has been raised from (P)Caa3 to (P)Caa2, with Pakistan’s outlook changing from stable to positive.
The agency also noted that Pakistan’s default risk has decreased to a level consistent with a Caa2 rating, largely due to improved clarity on external financing sources following a staff-level agreement with the International Monetary Fund (IMF) on July 12, 2024, for a $7 billion Extended Fund Facility (EFF) over 37 months. The IMF Board is expected to approve the facility in the coming weeks.
Despite the doubling of Pakistan’s foreign exchange reserves since June 2023, they still remain insufficient to fully meet external financing needs, and the country remains reliant on timely support from official partners to meet its external debt obligations. Moody’s also highlighted that Pakistan’s Caa2 rating reflects ongoing challenges in debt affordability, with interest payments projected to consume about half of government revenue over the next two to three years.
The agency emphasized that sustained reform implementation, particularly in revenue-raising measures, could expand the government’s revenue base and improve debt affordability. Moody’s also upgraded Pakistan’s local and foreign currency country ceilings to B3 and Caa2, respectively, from Caa1 and Caa3.
The agency estimated Pakistan’s external financing needs for fiscal year 2025 (ending June 2025) to be around $26 billion, including approximately $22 billion in external principal debt repayments and $4 billion (about 1% of GDP) to cover the current account deficit. Timely completion of IMF reviews is crucial for Pakistan to secure ongoing financing from official partners, which is essential for meeting external debt obligations and rebuilding foreign exchange reserves.
However, final approval of the IMF program is contingent upon the IMF Executive Board and requires Pakistan to obtain timely confirmations of necessary financing assurances from development and bilateral partners, including loan rollovers or disbursements from key allies such as Saudi Arabia, the United Arab Emirates, and China.
