Moody’s Ratings upgraded Pakistan’s sovereign credit rating to B3 from Caa1 on Monday, marking another improvement in the country’s credit profile.
The global ratings agency kept Pakistan’s outlook at “stable”. It cited stronger external finances, improving fiscal metrics and falling domestic financing costs.
Moody’s said Pakistan’s foreign exchange reserves have steadily increased amid continued macroeconomic stabilisation.
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“The upgrade to B3 reflects our expectations that improvements in governance will allow the government to sustain the recent improvements in the country’s external position and strengthen fiscal metrics,” Moody’s said.
The agency also pointed to cheaper domestic borrowing and an improved budget position.
“Lower domestic financing costs amid monetary easing and an improved fiscal position” have driven a “material improvement” in Pakistan’s debt affordability, Moody’s said.
It added that Pakistan’s strengthening credit profile shows “greater resilience to external shocks than in previous cycles,” including the ongoing Middle East conflict.
Pakistan’s reserves strengthen
Pakistan has spent recent years rebuilding its foreign exchange buffers after facing severe financial pressure.
Moody’s said reserves reached around $17 billion by the end of July 2026. That compares with about $14 billion a year earlier. The current level covers nearly three months of imports.
Latest State Bank of Pakistan data puts its own liquid foreign exchange reserves at $17.08 billion as of August 13. Commercial banks held another $5.42 billion.
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Moody’s said Pakistan’s External Vulnerability Indicator also improved sharply. The measure fell to about 145% in 2026 from 230% in 2025.
The ratings agency linked the progress partly to continued implementation of reforms backed by the International Monetary Fund.
Pakistan’s lower financing costs have also reduced pressure on government revenues.
Interest payments consumed about 35% of government revenue in fiscal 2026, according to Moody’s. That was down from 49% in fiscal 2025.
“We expect the recent improvement in Pakistan’s debt affordability to be durable, underpinned by sustained macroeconomic stability,” Moody’s said.
However, the agency also sounded a note of caution.
Moody’s said Pakistan’s credit profile “remains vulnerable” because of fragile external finances, weak debt affordability and a relatively narrow revenue base.
Large external financing requirements also remain a challenge.
Even after the upgrade, Pakistan remains in speculative-grade territory. Bloomberg noted that its risk assessment has improved from very high to high.
Argentina, Nigeria and Kyrgyzstan also carry B3 sovereign ratings from Moody’s, although their respective outlooks differ.
Pakistan returns to international debt markets
Pakistan has also started regaining access to global capital markets.
In April, the country returned to the Eurobond market after more than four years. It raised $750 million through a three-year private placement.
Pakistan followed that move in May with its first yuan-denominated Panda bond in China’s onshore market.
The government raised CNY 1.75 billion, roughly $250 million to $258 million, through the three-year bond. It carried a coupon of 2.5%. Investor demand exceeded the issue size by more than five times.
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The Asian Development Bank and Asian Infrastructure Investment Bank provided credit support for the transaction.
The Moody’s announcement came after Pakistan’s stock market had closed on Monday.
Pakistan’s dollar bonds gained following the decision. Bloomberg data showed the bond maturing in 2051 posted its strongest gain since August 20.
The Moody’s decision also follows an upgrade by S&P Global Ratings last month.
On July 22, S&P raised Pakistan’s long-term sovereign rating to B from B-. It maintained a stable outlook.
S&P cited stronger institutional capacity, growing foreign exchange reserves and faster fiscal consolidation. It also pointed to reforms aimed at expanding government revenues.
PM Shehbaz welcomes ‘global confidence’
Prime Minister Shehbaz Sharif welcomed Moody’s decision and praised the government’s economic team.
He particularly commended Deputy Prime Minister and Foreign Minister Ishaq Dar and Chief of Defence Forces and Army Chief Field Marshal Asim Munir for their efforts.
Shehbaz said the rating improvement reflected growing international confidence in the government’s economic policies and reforms.
The prime minister also welcomed recognition from international financial institutions and global rating agencies.
He said the government had taken effective steps to stabilise the economy and strengthen Pakistan’s external position.
“Global confidence in Pakistan is increasing as a result of continued efforts and reforms,” he said.
Shehbaz pledged to accelerate reforms and put the economy on a more sustainable path. He said the government wanted to make Pakistan stronger and more self-reliant.
Moody’s expects Pakistan’s reserves to rise further if the country maintains progress under the IMF programme.
The agency projects reserves of about $19 billion to $20 billion by the end of fiscal 2027. It expects them to reach $20 billion to $21 billion in fiscal 2028.
Still, Moody’s stressed that continued reforms will remain critical. Pakistan must maintain access to official financing while managing large external obligations and exposure to global shocks.
