ISLAMABAD: Moody’s Ratings on Wednesday upgraded Pakistan’s credit rating with a stable outlook from Caa2 to Caa1, citing the country’s improved financial position, supported by a loan from the International Monetary Fund (IMF).
Upgrade was secured after similar moves by S&P Global Ratings and Fitch Ratings in the past four months following repeated pledges by Prime Minister Shehbaz Sharif’s government to stay the course on fiscal consolidation and multiple reforms, it said in a statement.
Moody’s Ratings, in a statement, said it has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa1 from Caa2.
“We have also upgraded the rating for the senior unsecured MTN programme to (P)Caa1 from (P)Caa2. Concurrently, we changed the outlook for the Government of Pakistan to stable from positive.” The upgrade to Caa1 reflects Pakistan’s improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) programme, the agency said.
It added that foreign exchange reserves are likely to continue to improve, although Pakistan will remain dependent on timely financing from official partners.
Meanwhile, Moody’s said the sovereign’s fiscal position is also strengthening from very weak levels, supported by an expanding tax base. Its debt affordability has improved, but it remains one of the weakest among rated sovereigns. The Caa1 rating also incorporates the country’s weak governance and high political uncertainty.
The stable outlook also reflects balanced risks to Pakistan’s credit profile. “On the upside, improvements in the debt service burden and external profile could be more rapid than we currently expect.
“On the downside, there remains risks of delays in reform implementation required to secure timely official financing, which would in turn weaken Pakistan’s external position again.”
The upgrade to Caa1 from Caa2 rating also applies to the backed foreign currency senior unsecured ratings for The Pakistan Global Sukuk Programme Co Ltd, Moody’s said.
The rating agency said that the associated payment obligations are, in its view, direct obligations of the Pakistani government. “Concurrently, we changed the outlook for The Pakistan Global Sukuk Programme Co Ltd to stable from positive, mirroring the stable outlook on the Government of Pakistan.” Concurrent to today’s action, Moody’s has also raised Pakistan’s local and foreign currency country ceilings to B2 and Caa1 from B3 and Caa2, respectively. The two-notch gap between the local currency ceiling and sovereign rating is driven by the government’s relatively large footprint in the economy, weak institutions and high political and external vulnerability risk. The two-notch gap between the foreign currency ceiling and the local currency ceiling reflects incomplete capital account convertibility and relatively weak policy effectiveness. It also takes into account risks of transfer and convertibility restrictions being imposed.
Separately, while hinting at further reduction in policy rate, Minister for Finance Muhammad Aurangzeb said the IMF mission was expected to hold review talks by the end of September 2025 in order to gauge the economic health and strike an agreement for the release of the next tranche worth $1 billion.
In his address to the Rawalpindi Chamber of Commerce and Industry here on Wednesday, he said the monetary policy was the domain of the SBP, but he thought that there was room for further reduction in the policy rate within this ongoing calendar year.
Talking to the media after the RCCI ceremony, he said the IMF mission would visit by the end of September for holding review talks and evolving an agreement for the release of $1 billion under $7 billion Extended Fund Facility (EFF). The minister congratulated the nation ahead of the Independence Day and paid tribute to the armed forces for their courage in the ‘Battle of Truth’, describing it as a victory born not only of military strength but also of national unity, faith and resolve. He said the national security and economic stability were inseparable and the past 18 months had brought gains on the economic front.
He cited growth in GDP and per capita income, financial sector stability, a record reduction in fiscal deficit and inflation, a current account surplus, improved external accounts, higher foreign exchange reserves and remittances, double-digit growth in textile, IT and pharmaceutical exports, a stable rupee and a substantial cut in the policy rate. He said the business environment had improved with SME lending up 41 per cent, agricultural credit exceeding Rs2.5 trillion, private sector credit up 38pc, a 60pc rise in the stock market, record new investor participation and annual company registrations crossing 250,000. Major structural reforms were under way, including tariff reforms for the first time in 78 years, rightsizing of 43 federal ministries and over 400 departments, a participatory pension model, and acceleration of privatisation. Administrative changes in the energy sector had reduced losses, electricity tariffs were being rationalised, and contract renegotiations had saved billions. The FBR had digitised the tax system, brought agricultural income into the tax net, and provided relief to salaried individuals, corporates and the construction sector.
The minister said Pakistan’s economic achievements were being recognised globally, with the IMF, World Bank and international rating agencies acknowledging reforms and improving the country’s ratings. He said the government had secured a positive tariff deal with the US, concluded major climate-friendly financing programmes with the IMF and World Bank, received investment offers worth five times the planned issuance of green sukuk bonds, raised $1 billion from Middle East markets, and targeted the Panda bond as its next milestone.
He described these indicators as proof of the business community’s role in moving the country forward, adding that the private sector must lead in driving growth, innovation and job creation.
Aurangzeb said PM Shehbaz Sharif had made it clear that legitimate concerns of the business community must not only be heard but also addressed through practical measures. He said he, along with Haroon Akhtar Khan, Minister of State for Finance Bilal Azhar Kayani, the FBR chairman and SIFC national coordinator, had held detailed and result-oriented consultations with business leaders. He added that these were open and frank discussions aimed at finding workable solutions and that such engagement would continue throughout the year, not just during budget preparation.
He said monthly meetings between the Minister of State for Finance and the chambers, as well as regular engagement through consultative committees and forums, would ensure smooth implementation of budget provisions, including Section 40B and other clauses, in a cooperative environment. He urged the business community to move forward together, saying the goal was a prosperous, strong and developed Pakistan built on sincerity, unity and hard work.