Global credit rating agency Moody’s has upgraded Pakistan’s credit rating by one notch, raising it from Caa2 to Caa1, while shifting the outlook from positive to stable. The agency attributed the move to the country’s improving external position and progress on economic reforms.
In its statement issued on Wednesday, Moody’s said the upgrade reflects Pakistan’s strides under the International Monetary Fund’s Extended Fund Facility (EFF), which has supported stronger foreign exchange reserves and a more stable macroeconomic environment.
“The upgrade to Caa1 reflects Pakistan’s improving external position, supported by its progress in reform implementation,” Moody’s noted.
The agency, however, also pointed to Pakistan’s continued weak governance and high political uncertainty. While reserves are expected to keep improving, Moody’s warned that the country remains heavily reliant on timely financial support from official partners.
The rating firm also highlighted improvements in Pakistan’s fiscal position, supported by an expanding tax base. Although debt affordability has improved, it remains among the weakest of all rated sovereigns.
The stable outlook, according to Moody’s, suggests balanced risks to the credit profile. While external and fiscal indicators could improve faster than expected, any delays in reform implementation or disruptions in foreign financing could reverse progress.
In addition to sovereign debt, the upgrade also applies to:
- Pakistan Global Sukuk Programme Co Ltd: Backed foreign currency senior unsecured ratings raised to Caa1 from Caa2.
- Country ceilings: Local currency ceiling upgraded to B2 (from B3); foreign currency ceiling to Caa1 (from Caa2).
Moody’s explained that the two-notch difference between the local currency ceiling and the sovereign rating reflects the government’s large role in the economy, institutional weaknesses, and ongoing political and external vulnerabilities.
Finance Minister Muhammad Aurangzeb, who previously urged Moody’s to reconsider Pakistan’s rating during a virtual meeting in July, welcomed the upgrade. Speaking at an event earlier today, he said that global financial institutions had recognized the country’s economic reforms and expressed hope that other agencies would follow suit.
Pakistan has delayed issuing international bonds since July 2021 due to economic headwinds and low credit ratings, relying instead on deposits from friendly countries to meet its external obligations.
This is the second upgrade by Moody’s in just under a year. On August 28, 2024, the agency had raised Pakistan’s rating from Caa3 to Caa2, citing improving macroeconomic indicators. However, in February 2024 — just after the general elections — Moody’s had held Pakistan’s rating at Caa3, citing high political risk following a controversial vote.
