Moody's upgrades Pakistan rating

August 13, 2025 (MLN): Global credit rating agency Moody’s on Wednesday raised Pakistan’s sovereign credit rating by one notch, upgrading it from Caa2 to Caa1 and shifted its outlook from “positive” to “stable,” citing an improved external position and ongoing economic reforms.

Moody’s credit ratings assess the repayment ability of borrowers such as governments, corporations, and financial entities using a scale from Aaa (highest quality) to C (lowest quality). Within the “Caa” category, Caa1 represents the least risky tier, followed by Caa2 and then Caa3, which signals the highest default risk in the group.

In its statement the agency said that it has upgraded the Government of Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from Caa2.

It further added that the rating for Pakistan’s senior unsecured medium-term note programme had also been upgraded to (P)Caa1 from (P)Caa2.

According to Moody’s, the upgrade shows Pakistan’s progress under the International Monetary Fund’s Extended Fund Facility (EFF) programme, which has helped stabilize the external account. The agency, however, cautioned that weak governance and high political uncertainty remain key credit constraints.

Moody’s noted that foreign exchange reserves are expected to continue improving but stressed that Pakistan will remain reliant on timely support from international partners.

On the fiscal front, it highlighted a stronger revenue base and improved debt affordability, although the latter still ranks among the weakest of all rated sovereigns.

The “stable” outlook, Moody’s said, emphasizes balanced risks. On the upside, debt servicing and external metrics could strengthen faster than anticipated; on the downside, any delays in reforms or official financing could once again weaken the external position.

The rating upgrade also extends to the backed foreign currency senior unsecured ratings for The Pakistan Global Sukuk Programme Co Ltd.

Finance Minister Muhammad Aurangzeb, who had urged Moody’s to improve Pakistan’s rating during a virtual meeting in July, welcomed the decision.

Speaking at an event earlier in the day, he noted that international financial institutions had endorsed Pakistan’s economic reforms and expressed optimism that rating agencies would acknowledge the progress.

Pakistan has not issued international bonds since July 2021, instead depending on bilateral deposits from friendly countries to meet external obligations.

Moody’s last raised Pakistan’s ratings on August 28, 2024, from Caa3 to Caa2, with an outlook upgrade to “positive” amid signs of economic recovery.

Earlier, in February 2024, shortly after general elections, the agency had maintained Pakistan’s Caa3 rating, citing elevated political risks following a contested vote.

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