Moody’s Investors Service has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3. This is a significant development for Pakistan, as it indicates improved macroeconomic conditions and a reduction in default risk.
Moody’s Investors Service has upgraded Pakistan’s credit rating from “Caa3″ to “Caa2,” with a positive outlook. This means that Pakistan’s financial situation has improved somewhat, though challenges remain. The upgrade in Pakistan’s ratings reflects better economic conditions, improved government liquidity, and more stable external financing.
Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating, as per Moody’s. “There is now greater certainty on Pakistan’s sources of external financing. Following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility (EFF) of $7 billion.”
“We believe this will be achievable, given the strong past record of support and significant policy measures in the recent budget for the fiscal year ending June 2025 (FY25),” it said.
This positive change is largely due to Pakistan’s agreement with the International Monetary Fund (IMF) for a 37-month, $7 billion loan program. This agreement provides greater certainty about Pakistan’s ability to access external funding. The country must meet its financial obligations.
Pakistan’s foreign exchange reserves have nearly doubled since June 2023. Although they are still below what is needed to cover all external financing requirements. The country continues to rely on timely financial support from its international partners.
Other Good News
Moreover, it stated that Saudi Arabia and the United Arab Emirates “have collectively pledged to invest $15 billion in Pakistan, which if realised, would significantly bolster Pakistan’s foreign exchange reserves”.
Moody’s also highlighted some ongoing risks, such as weak debt affordability, high political uncertainty, and the need for continued economic reforms. Despite these challenges, the positive outlook indicates that there is potential for further improvement. If the government successfully implements the necessary reforms and secures more financial support.
However, it cautioned that the rating would like to be downgraded if there were an increase in external vulnerability risks. “An increase in social and political risks that disrupted policymaking and undermined Pakistan’s ability to secure financing would also be credit negative,” it said.
