5 days ago
Moody's upgrades Pakistan credit rating, but flags ‘fragile' external position
Moody's Ratings on Wednesday, August 13, upgraded Pakistan's credit rating to 'Caa1' from 'Caa2', indicating an improvement in the country's financial situation. The ratings agency also revised the outlook for the Government of Pakistan to stable from Government of Pakistan's local and foreign currency issuer and senior unsecured debt ratings have been upgraded to Caa1 from Caa2, Under Moody's long-term obligation rating system, a 'Caa' rating suggests poor standing and very high credit risk, while the numeric identifier reflects the higher end of its upgrade to Caa1 reflects Pakistan's improving external position, supported by its progress in reform implementation under the International Monetary Fund (IMF) Extended Fund Facility (EFF) program,' Moody's said.
The move follows similar upgrades by Fitch Ratings and S&P Global in recent days. Moody's noted that Pakistan's foreign exchange reserves are likely to keep improving, although the country will remain dependent on timely financing from official agency said the stable outlook 'reflects balanced risks to Pakistan's credit profile.' On the upside, it noted that 'improvements in the debt service burden and external profile could be more rapid than we currently expect.'However, it warned of 'risks of delays in reform implementation required to secure timely official financing, which would in turn weaken Pakistan's external position again.'Moody's highlighted that Pakistan's external position has strengthened over the past year and is expected to see 'further gradual improvements' as IMF-led reforms support financing from bilateral and multilateral partners. The agency said this will help boost foreign exchange said that Pakistan met its external debt obligations and added to its reserves in FY2025, and is expected to do so for the next few years, contingent on 'steady progress on reform implementation and timely completion of IMF reviews.'The agency cited Pakistan's access to new financing sources, including a 28-month IMF Resilience and Sustainability Facility worth about $1.4 billion and a ten-year World Bank country partnership framework for FY2026-2035 with an indicative financing envelope of $20 the upgrade, Moody's warned that Pakistan's external position remains fragile, with reserves still well below what is required to meet obligations. 'We estimate Pakistan's external financing needs are about $24-25 billion in FY2026, and similar amounts again in FY2027,' it agency cautioned that any slippage in reform implementation or withdrawal of financing support could lead to 'renewed material deterioration in the sovereign's external position.' It also noted that several previous IMF programs were not completed, citing weak governance, institutional challenges, and a difficult domestic political environment.- EndsMust Watch
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