Moody’s upgrades Pakistan’s ratings to ‘Caa2’ on improved economic outlook

Moody’s Ratings has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3, citing improving macroeconomic conditions and better government liquidity and external positions. The rating agency noted that Pakistan’s default risk has reduced due to greater certainty on external financing sources, including a new agreement with the IMF for a $7 billion loan. While foreign exchange reserves have doubled since June 2023, they still fall short of meeting external financing needs. Moody’s warned of Pakistan’s very weak debt affordability and high political uncertainty, but stated that sustained reform implementation could improve the country’s fiscal position. The positive outlook reflects the possibility of further reducing liquidity and external vulnerability risks.