Moody’s Raises Pakistan’s Credit Ratings

Moody’s Ratings has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3 due to improvements in macroeconomic conditions.

“We have also raised the rating for the senior unsecured MTN program to (P)Caa2 from (P)Caa3. At the same time, the outlook for the Government of Pakistan has been revised from stable to positive,” the rating agency stated.

The upgrade to Caa2 reflects Pakistan’s improving macroeconomic conditions and slightly better government liquidity and external positions, though they remain weak.

“We expect interest payments to continue absorbing about half of government revenue over the two to three years.”

“Sustained reform implementation, including revenue-raising measures, can increase the government revenue base and improve Pakistan’s debt affordability,” it said.

“The outlook for The Pakistan Global Sukuk Programme Co Ltd is positive,” it said.

According to Moody’s, Pakistan’s default risk has decreased to a level consistent with a Caa2 rating. This improvement follows the sovereign’s staff-level agreement with the IMF on July 12, 2024, for a 37-month Extended Fund Facility (EFF) of $7 billion, which has increased certainty about Pakistan’s sources of external financing.

The rating agency also anticipates that the IMF Executive Board will approve Pakistan’s loan deal in the coming weeks.

While Pakistan’s foreign exchange reserves have nearly doubled since June 2023, they still fall short of what is needed to fully address its external financing requirements, Moody’s noted.

“We estimate Pakistan’s external financing needs to be about $26 billion for fiscal 2025 (ending June 2025), comprising of around $22 billion of external principal debt repayments in fiscal 2025 and another $4 billion (about 1% of GDP) to finance the current account deficit,” Moody’s said.