Moody's Upgrades Pakistan's Credit Rating to Caa1, Outlook Stable

Strategic Insights -

Pakistan's credit rating was upgraded to 'Caa1' from 'Caa2' by Moody's, citing improvements in the country's external position and progress on reforms under the IMF program. The agency said foreign exchange reserves are likely to continue to improve, although Pakistan will remain dependent on timely financing from official partners. Moody's also revised Pakistan's local and foreign currency country ceilings to 'B2' and 'Caa1' from 'B3' and 'Caa2', respectively.

Key Takeaways:

  • Moody's upgraded Pakistan's credit rating to 'Caa1' from 'Caa2' due to improved external position and progress on reforms under the IMF program.
  • Pakistan's fiscal position is strengthening from very weak levels, supported by an expanding tax base, with debt affordability improving, but remaining one of the weakest among rated sovereigns.
  • The Caa1 rating incorporates Pakistan's weak governance and high political uncertainty.
  • The stable outlook reflects balanced risks to Pakistan's credit profile, with upside potential for improvements in debt service burden and external profile.
  • Pakistan's external financing needs are about $24-25 billion in FY26 and similar amounts again in FY27.
  • Moody's raised Pakistan's local and foreign currency country ceilings to 'B2' and 'Caa1' from 'B3' and 'Caa2', respectively.
  • The two-notch gap between the local currency ceiling and sovereign rating is driven by the government's relatively large footprint in the economy, weak institutions, and high political and external vulnerability risk.
  • Pakistan successfully completed the first review of the IMF program, unlocking a $1 billion disbursement in May 2025 and securing a $1 billion commercial loan in June 2025, with a $500 million policy-based guarantee by the Asian Development Bank.
  • The IMF Resilience and Sustainability Facility (RSF) arrangement worth about $1.4 billion will help Pakistan unlock new sources of financing.

Statistics:

  • Foreign exchange reserves stood at $14.3 billion as of July 25, 2025, equivalent to about 10 weeks of imports.
  • Pakistan's foreign exchange reserves have more than tripled since end-June 2023, when they stood at $4.4 billion.
  • Pakistan's external debt obligations are about $24-25 billion in FY26 and similar amounts again in FY27.
  • Pakistan successfully secured a $1 billion commercial loan in June 2025, with a $500 million policy-based guarantee by the Asian Development Bank.
  • The IMF Resilience and Sustainability Facility (RSF) arrangement is worth about $1.4 billion and will help Pakistan unlock new sources of financing.

Sources:

  • Moody's, "Moody's upgrades Pakistan's rating to Caa1; stable outlook reflects balanced risks" (July 2025)
  • IMF, "Pakistan: Staff Report for the 2025 Article IV Consultation" (July 2025)
  • World Bank, "Pakistan: Country Partnership Framework FY26-35" (2025)
  • Asian Development Bank, "Pakistan: Policy-Based Guarantee of $500 million" (June 2025)