Moody’s upgrades Pakistan from Caa1 to B3, citing stronger reserves, lower domestic financing costs and improved fiscal conditions, while retaining a stable outlook.
ISLAMABAD: Moody’s Ratings has upgraded Pakistan’s sovereign credit rating to B3 from Caa1, citing improvements in the country’s external position, fiscal metrics and domestic financing conditions.
The global ratings agency has maintained Pakistan’s outlook at stable, marking a further improvement in the country’s credit profile. Moody’s announced the rating action on Monday.
Moody’s said Pakistan’s external vulnerabilities had eased as foreign exchange reserves continued to build, supported by sustained macroeconomic stabilisation.
The agency also highlighted lower domestic financing costs following monetary easing and an improved fiscal position, saying these factors had led to a material improvement in the country’s debt affordability.
Pakistan shows greater resilience to external shocks
According to Moody’s, Pakistan’s strengthening credit profile is showing greater resilience to external shocks than in previous economic cycles.
The assessment comes as Pakistan continues efforts to rebuild its foreign exchange reserves and implement economic reforms following several years of financial stress.
The latest rating upgrade follows an improvement in Pakistan’s access to international capital markets and progress on economic stabilisation.
Pakistan’s dollar-denominated bonds also gained following the announcement, with the bond maturing in 2051 recording its strongest increase since August 20, according to market data cited in reports.
Debt risks remain a concern
Despite the upgrade, Pakistan remains in speculative-grade territory, reflecting continued risks surrounding its public finances and external position.
Moody’s cautioned that Pakistan’s credit profile remains vulnerable because of fragile external finances, weak debt affordability and a relatively narrow government revenue base.
The upgrade therefore reflects an improvement in credit conditions rather than an elimination of the structural risks facing the economy.
S&P also upgraded Pakistan rating
The development follows a similar rating action by S&P Global Ratings, which upgraded Pakistan’s sovereign credit rating in July, citing improving economic and financial conditions.
Pakistan has also taken steps to regain access to international debt markets.
In April, the country returned to international debt markets through a private-placement global bond after an absence of more than four years.
A month later, Pakistan issued its first yuan-denominated notes in China’s onshore market, marking another step towards diversifying its sources of foreign-currency financing.
Foreign exchange reserves strengthen
Pakistan’s foreign exchange reserves have increased to around $17.1 billion, according to the latest available data, providing a stronger buffer against external financing pressures.
Prime Minister Shehbaz Sharif welcomed Moody’s decision, praising the government’s economic team for its efforts to improve the country’s economic outlook.
The rating upgrade is expected to support investor confidence and could help Pakistan access international financing on comparatively better terms, provided the country continues implementing fiscal, structural and external-sector reforms.
Moody’s latest assessment indicates that while Pakistan’s creditworthiness has improved, maintaining the gains will depend on continued progress in strengthening fiscal sustainability, increasing revenue mobilisation, building reserves and reducing external vulnerabilities.