Moody’s upgrades Pakistan’s credit rating to B3, outlook stable

Pakistan’s sovereign credit standing has received a boost from Moody’s, which upgraded the country’s rating by one notch to B3 from Caa1 while keeping its outlook stable.

The ratings agency said Pakistan had made progress in reducing external pressures, with foreign exchange reserves continuing to improve amid broader macroeconomic stabilisation.

Moody’s also highlighted an improvement in the government’s debt position, attributing it partly to lower domestic borrowing costs following monetary easing and better fiscal performance.

The agency expects further improvements in governance to help sustain these gains and strengthen Pakistan’s fiscal and external position.

It also said Pakistan appeared better placed to withstand external shocks than during previous periods of economic stress, including amid the continuing conflict in the Middle East.

Despite the upgrade, Moody’s said Pakistan still faced substantial challenges that constrained its credit profile. These included a fragile external position, high debt-servicing pressures, a narrow tax base and limited ability to attract investment and generate stronger economic growth.

The stable outlook reflects Moody’s assessment that the potential for further improvement is broadly balanced by these continuing risks.

The agency warned that a deterioration in Pakistan’s external vulnerabilities could affect its ability to secure foreign-currency financing and put further pressure on the government’s fiscal room.

Moody’s also upgraded the backed foreign-currency senior unsecured ratings of The Pakistan Global Sukuk Programme Co Ltd to B3. The outlook for the programme remains stable.