Moody’s upgrades Pakistan’s credit rating to B3

Global rating agency Moody’s has upgraded Pakistan’s sovereign credit rating from Caa1 to B3, citing improvements in the country’s

ISLAMABAD: Global rating agency Moody’s has upgraded Pakistan’s sovereign credit rating from Caa1 to B3, citing improvements in the country’s governance, external position and fiscal indicators.

The agency has maintained Pakistan’s outlook at stable. The latest decision marks a significant improvement in the country’s credit profile and comes as Pakistan continues efforts to strengthen its economy and reduce financial risks.

Moody’s said Pakistan’s external vulnerability has eased further since its previous rating action in August 2025. Foreign exchange reserves have increased steadily, supported by broader macroeconomic stabilisation.

The rating agency also pointed to lower domestic financing costs. Monetary easing and an improved fiscal position have helped strengthen Pakistan’s debt affordability. Moody’s expects these improvements to remain sustainable if economic stability is maintained.

Pakistan’s foreign exchange reserves stood at around $17 billion at the end of July 2026, compared with about $14 billion a year earlier. Moody’s estimates that the country’s reserves now provide nearly three months of import cover.

The agency also noted that Pakistan’s external vulnerability indicator has improved considerably. It estimated the ratio of debt falling due to available foreign exchange reserves at about 145% in 2026, compared with 230% in 2025.

The improved rating could strengthen international confidence in Pakistan’s ability to meet its financial obligations. Sovereign credit ratings are closely watched by international investors, lenders and financial institutions when assessing the risks associated with lending to a country.

A stronger rating can also support Pakistan’s efforts to raise funds from international markets. It may help reduce borrowing pressures over time if the improved economic indicators are sustained.

The development follows a similar move by S&P Global Ratings last month. S&P upgraded Pakistan’s long-term sovereign rating from B- to B, also keeping the outlook stable.

However, Moody’s stressed that significant risks remain. Pakistan continues to face a structurally fragile external position, a relatively narrow revenue base and challenges in improving debt affordability.

The agency also highlighted constraints on attracting investment and achieving stronger, high-productivity economic growth. These weaknesses remain reflected in the B3 rating.

Moody’s stable outlook represents a balance between the possibility of further improvement in Pakistan’s credit fundamentals and the risks that could reverse recent gains.

According to the agency, renewed pressure on external financing could weaken Pakistan’s access to foreign-currency funding. Such developments could also reduce the government’s fiscal flexibility.

Despite these challenges, the upgrade represents a positive assessment of Pakistan’s recent economic progress. It indicates that the country’s financial position has become more resilient compared with previous periods of severe external pressure.