Moody’s Upgrades Pakistan’s Rating, Outlook Revised
Moody’s Investors Service has delivered a vote of confidence in Pakistan’s economic direction, upgrading the country’s long-term foreign debt rating from Caa2 to Caa1 and shifting the outlook from positive to stable. The decision signals that Pakistan’s efforts to strengthen its external position, improve fiscal discipline, and manage debt repayments are starting to pay off, despite lingering political and governance challenges.
The upgrade applies not only to the sovereign rating but also to the backed foreign currency senior unsecured ratings for The Pakistan Global Sukuk Programme Co Ltd, with the outlook similarly revised to stable. In addition, Pakistan’s local and foreign currency country ceilings have been raised to B2 and Caa1 respectively, from B3 and Caa2.
Moody’s attributed this progress to steady reform implementation under the IMF program, a stronger reserve position, and broader tax collection. Foreign exchange reserves have risen sharply to $14.3 billion as of July 25, 2025—enough to cover 10 weeks of imports—up from $9.4 billion a year earlier and triple the amount recorded in June 2023.
The successful completion of the first IMF review in May unlocked a $1 billion disbursement, while additional financing came through a $1 billion commercial loan backed by a $500 million guarantee from the Asian Development Bank. Pakistan has also secured a $1.4 billion arrangement under the IMF Resilience and Sustainability Facility and entered a 10-year partnership with the World Bank, worth an indicative $20 billion.
On the fiscal side, Pakistan’s revenue collection has strengthened, climbing to 16% of GDP in FY2025 from 12.6% the previous year, thanks to improved tax measures and new policy reforms. The fiscal deficit narrowed to 5.4% of GDP in FY2025 and is projected to shrink further in FY2026. Debt affordability has also improved, with interest payments expected to fall to 40-45% of revenues by FY2026-27, compared to a staggering 60% in FY2024.
However, Moody’s warned that Pakistan’s economic progress remains fragile. Annual external financing needs are still estimated at $24-25 billion for the next two fiscal years, while foreign exchange reserves remain below the ideal buffer for meeting debt obligations. The country also faces long-term risks from climate change, water scarcity, and limited access to essential services—factors that could weigh on economic resilience.
READ MORE: Gold rates drop in Pakistan as global prices fall
The stable outlook reflects a balance between upside potential and ongoing vulnerabilities. Faster improvements in debt affordability and reserve levels could lead to another upgrade, but delays in reforms or disruptions in external financing could reverse gains. Moody’s stressed that the key to sustained improvement lies in continued fiscal consolidation, strong governance, and consistent implementation of structural reforms.
