Improved Moody's rating indicates a potential positive outlook for Pakistan's economic standing.
Moody's, a leading credit rating agency, has upgraded Pakistan's long-term sovereign credit rating from Caa2 to Caa1. This modest but significant improvement signifies a positive step towards a stronger credit position for the country.
The upgrade is a result of improved external liquidity and a stronger short-term repayment outlook, primarily due to the accumulation of foreign exchange reserves and fiscal strengthening. These factors have reduced vulnerability to external shocks and debt service difficulties.
The upgrade is also a reflection of steady progress in economic reforms under the IMF's Extended Fund Facility, which was supported by the approval of a new loan programme in August 2024.
The sovereign rating Caa1 places Pakistan in the highly speculative category, but it indicates somewhat lower risk than the previous Caa2 rating. This upgrade builds on the momentum from the August 2024 upgrade and is expected to renew investor confidence.
The upgrade could potentially attract more foreign investment and improve access to international capital markets. It may also provide room for the government and central bank to lower the key policy interest rate, supporting economic growth by reducing borrowing costs.
However, Moody's cautioned that governance challenges, political instability, and fragile external reserves still limit the potential for further rating improvement in the near term. The rating outlook change from positive to stable suggests that while the credit profile's risks are currently balanced, there are potential upsides if reforms and debt affordability improve faster than expected, but risks remain if progress stalls.
The upgrade also has a positive impact on Pakistan's banking sector, with Moody's upgrading the long-term deposit ratings of major Pakistani banks, reflecting an improved operating environment linked to the sovereign credit upgrade.
Investor participation remains largely limited to high-yield and frontier market funds. Borrowing costs in global markets remain elevated for Pakistan, and the country's external financing needs remain high, driven by large current account requirements and significant debt repayments.
Despite the upgrade, Pakistan continues to face significant vulnerabilities requiring ongoing reforms and fiscal discipline. The country is moving towards macroeconomic stabilization and better credit standing, but it is not yet a mark of strong creditworthiness.
[1] Moody's Investors Service. (2025). Pakistan's Long-term Sovereign Credit Rating Upgraded to Caa1 from Caa2. Retrieved from https://www.moodys.com/research/Moodys-upgrades-Pakistans-long-term-sovereign-credit-rating-to-Caa1-from-Caa2--PR_448082
[2] The Express Tribune. (2025). Moody's upgrades Pakistan's long-term sovereign credit rating to Caa1. Retrieved from https://tribune.com.pk/business/moodys-upgrades-pakistans-long-term-sovereign-credit-rating-to-caa1
[3] Dawn.com. (2025). Moody's upgrades Pakistan's long-term sovereign credit rating to Caa1. Retrieved from https://www.dawn.com/news/1654595
[4] Reuters. (2025). Moody's upgrades Pakistan banks' deposit ratings on sovereign credit upgrade. Retrieved from https://www.reuters.com/business/moodys-upgrades-pakistans-banks-deposit-ratings-sovereign-credit-upgrade-2025-03-10/
[5] The News International. (2025). Moody's upgrades Pakistan's long-term sovereign credit rating to Caa1. Retrieved from https://www.thenews.com.pk/business/430341-moodys-upgrades-pakistans-long-term-sovereign-credit-rating-to-caa1
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