Moody’s upgrades Pakistan’s credit rating to Caa2

ISLAMABAD: Moody’s Investors Service announced on Wednesday that it has upgraded Pakistan’s credit ratings, raising both the local and foreign currency issuer ratings, as well as the senior unsecured debt ratings, from Caa3 to Caa2.

According to Mettis Global, the rating for the senior unsecured Medium-Term Note (MTN) programme has also been upgraded from Caa3 to Caa2.

In addition, Moody’s has changed its outlook on the Government of Pakistan from stable to positive.

This upgrade reflects improvements in Pakistan’s macroeconomic conditions and a modest enhancement in government liquidity and external positions, although these remain at relatively weak levels.

Moody’s noted that Pakistan’s default risk has now decreased to a level consistent with a Caa2 rating.

The agency highlighted that greater certainty regarding Pakistan’s external financing sources has emerged following a staff-level agreement with the International Monetary Fund (IMF) on 12 July 2024.

This agreement involves a 37-month Extended Fund Facility (EFF) worth $7 billion. Moody’s anticipates that the IMF Board will approve this facility in the coming weeks.

Moody’s report indicates that Pakistan’s foreign exchange reserves have approximately doubled since June 2023, though they still fall short of the amount needed to meet its external financing requirements.

The country remains dependent on timely support from official partners to fulfil its external debt obligations.

Challenges remain for Pakistan

Despite these improvements, Moody’s emphasised that Pakistan’s Caa2 rating reflects continued challenges, including weak debt affordability and high debt sustainability risks. The agency projects that interest payments will continue to consume about half of the government’s revenue over the next two to three years.

Additionally, the rating takes into account the country’s poor governance and significant political uncertainty.

Read next: Third consecutive petrol, diesel price cut on the cards for Pakistanis