Moody’s Investors Service has raised Pakistan’s local and foreign currency issuer and senior unsecured debt ratings from Caa2 to Caa1. The agency also upgraded the ratings for the country’s senior unsecured Medium Term Note (MTN) program to (P)Caa1 from (P)Caa2. Alongside this, Moody’s revised the outlook for Pakistan to stable from positive.

The upgrade reflects improvements in Pakistan’s external financial position, driven by progress in reform efforts under the IMF’s Extended Fund Facility (EFF) program. Moody’s noted that Pakistan’s foreign exchange reserves are expected to continue growing, although the country remains dependent on ongoing support from official international partners. The agency highlighted that Pakistan’s fiscal situation is strengthening, supported by an expanding tax base and better revenue collection. However, its debt levels and governance challenges still pose risks. The rating also considers high political uncertainty and weak governance structures. The stable outlook indicates balanced risks. Potential upside factors include faster‑than‑expected improvements in debt servicing and external balance. Conversely, delays in implementing reforms could hinder progress, weakening Pakistan’s external position.

Moody’s also applied the same rating upgrade to the foreign currency senior unsecured obligations of The Pakistan Global Sukuk Programme Co Ltd, which are considered direct obligations of the government. The outlook for this entity was also changed to stable from positive.

Pakistan’s external position has shown signs of strengthening over the past year, with expectations of continued gradual improvement owing to reform progress under the IMF program. The country met its external debt obligations for FY2025, with foreign exchange reserves increasing, but reserves remain below the levels needed to cover upcoming debt payments fully.

The nation secured new financing sources, including a 28‑month IMF arrangement worth approximately $1.4 billion and a ten‑year partnership with the World Bank, with a potential $20 billion in funding. However, Moody’s emphasized that Pakistan’s external financing needs are estimated at around $24‑25 billion annually for FY2026 and FY2027, underscoring the importance of sustained reform efforts. Pakistan’s fiscal outlook has improved, with narrower budget deficits and increased revenues driven by better tax enforcement and additional revenue sources like dividends from the State Bank of Pakistan. The government’s revenue as a share of GDP is projected to rise to roughly 16% in FY2025, with further modest growth expected in FY2026.

Despite these gains, government expenditure, especially on defense, is rising, and interest payments continue to be a significant fiscal burden, consuming a substantial share of revenues. Moody’s forecasts the fiscal deficit to decrease to about 4.5‑5% of GDP in FY2026. Moody’s cautioned that delays or failures in reform implementation could jeopardize Pakistan’s access to official funding and worsen its external position. Past IMF programs faced setbacks due to governance weaknesses and political instability, challenges that the current government, formed after the February 2024 elections, must navigate carefully.

Moody's upgrades Pakistan's credit ratings, shifts outlook to stable from positive

Moody’s Investors Service raised Pakistan’s local and foreign‑currency issuer and senior unsecured debt ratings from Caa2 to Caa1, upgraded the country’s senior unsecured Medium Term Note (MTN) program to (P)Caa1, and changed the country outlook to stable from positive. The upgrade reflects improvements in Pakistan’s external position, fiscal strengthening, and progress under the IMF’s Extended Fund Facility, while noting risks from debt levels, governance challenges, and political uncertainty.