Moody's upgrades Pakistan's credit ratings to Caa1

Islamabad (Web Desk): Moody’s Investors Service has upgraded Pakistan’s local and foreign currency issuer ratings, moving them from Caa2 to Caa1, while also shifting the outlook from positive to stable.

The improved rating extends to Pakistan’s senior unsecured debt and its global medium-term note (MTN) programme, reflecting an overall enhancement in the country's credit profile.

The revision acknowledges the country's gradual recovery in external finances, driven by structural reforms under the IMF’s Extended Fund Facility. Although Pakistan remains heavily reliant on coordinated support from international partners, its foreign currency reserves are showing signs of sustained growth.

On the domestic front, fiscal conditions are strengthening, backed by an expanded tax base. Debt affordability has marginally improved, though it continues to trail behind most of the countries in the rated universe.

Despite these gains, Moody’s still factors in persistent challenges such as institutional weaknesses, governance limitations, and heightened political uncertainty, all of which constrain the scope for a stronger credit rating.

The stable outlook assigned by Moody’s implies that while the current direction is positive, the country’s financial trajectory remains subject to balanced risks.

A quicker-than-expected reduction in external vulnerabilities or improvement in debt metrics could support future upgrades. Conversely, setbacks in reform implementation or delays in external financing could place renewed pressure on the economy.

The ratings agency has also aligned the rating of the Pakistan Global Sukuk Programme Co Ltd with the sovereign’s, viewing its liabilities as direct obligations of the state.

Similarly, the outlook for the Sukuk issuer was adjusted to stable in line with the sovereign view. Furthermore, Moody’s revised Pakistan’s country ceilings upward, raising the local currency ceiling to B2 and the foreign currency ceiling to Caa1.

The difference in these ceilings reflects structural weaknesses, including a limited degree of capital account openness and exposure to external and policy-related vulnerabilities.

Reacting to the development, Khurram Schehzad, Advisor to the Finance Minister, described the upgrade as a milestone that reinforces international trust in Pakistan’s ongoing economic reforms.

He noted that while the road to recovery is still under construction, this recognition underscores Pakistan’s movement toward macroeconomic resilience.

With this revision, all three major global credit agencies now assign stable outlooks to Pakistan’s sovereign ratings, signaling a tentative but improving sentiment in global financial markets.