Moody's upgrades Pakistan's ratings to 'Caa2' with positive outlook

Moody’s investor services on Wednesday upgraded Pakistan’s long-term local and foreign currency issuer and senior unsecured debt rating to Caa2 from Caa3 with a stable outlook.

The development came after the Fitch rating last month promoted the cash-strapped country to CCC+ from CCC.

However, Moody’s said the upgrade showed that improvement in macroeconomic conditions and moderately better government liquidity and external position.

“Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating,” it said in a statement.

The global credit agency that degraded Pakistan in February 2023 said the country has greater certainty for external financing.

“We expect the IMF Board to approve the Extended Fund Facility (EFF) in the in the next few weeks,” it added.

The report also noted that the foreign reserve also about doubled since June 2023, however, it is lower than the requirement of the IMF.

The agency said Pakistan's rating of Caa2 still showed the country’s very weak debt affordability, which drives high debt sustainability risk.

The Caa2 rating also displays the country’s weak governance and high political uncertainty, it explained.

The positive outlook demonstrated that the government can lower its liquidity and external financing risk and achieve better fiscal conditions with the IMF's financial support.

It said that the implementation of sustainable reforms, including revenue-raising measures can boost Pakistan’s debt affordability.

Despite reducing default risk, Pakistan failed to unlock a $7 billion bailout programme from the IMF. 

Back in July, Pakistan and the IMF reached a staff-level-agreement for a 37-month loan programme but it could not get approval from the global lender due to the delay in confirmation about external financing from bilateral partners.