Moody’s Ratings has upgraded Pakistan’s sovereign credit rating to B3 from Caa1, maintaining a stable outlook and citing improvements in governance along with easing external and fiscal vulnerabilities.
The agency said the upgrade reflects expectations that continued governance improvements will allow the government to sustain recent gains in the country’s external position and strengthen fiscal metrics.
Foreign exchange reserves have risen to about $17 billion at the end of July 2026, up from $14 billion a year earlier, covering nearly three months of imports. As a result, Pakistan’s External Vulnerability Indicator, which measures short and long term maturing debt against reserves, improved to around 145 percent in 2026 from 230 percent in 2025.
Moody’s attributed the improvement to sustained macroeconomic stabilisation and continued implementation of the International Monetary Fund’s supported reform programme, which has strengthened policy credibility and underpinned financing from official creditors.
Pakistan has also regained gradual access to market financing, including a three year, $750 million Eurobond issued in April 2026 and a debut Panda bond worth CNY 1.75 billion, or about $250 million, in May 2026.
The agency said these developments allowed Pakistan to meet all external obligations in fiscal year 2026 while accumulating reserves. It projected reserves would rise further to $19 billion to $20 billion by the end of fiscal 2027 and $20 billion to $21 billion in fiscal 2028, provided the government sustains progress on the IMF programme and continues to secure timely disbursements and market access.
According to IMF estimates cited by Moody’s, Pakistan will need to meet external financing requirements of about $21 billion in fiscal 2027 and around $30 billion in fiscal 2028. Of these, about $7 billion and $12 billion respectively consist of existing bilateral deposits expected to be rolled over.
Debt affordability has also improved. Interest payments absorbed about 35 percent of government revenue in fiscal 2026, down from 49 percent in fiscal 2025. Moody’s said it expects this improvement to be durable, supported by sustained macroeconomic stability.
Despite the upgrade, Moody’s cautioned that Pakistan’s credit profile remains vulnerable due to a structurally fragile external position, weak debt affordability, a narrow revenue base, and constraints on attracting investment and stimulating high productivity economic growth.
It added that inflation remains sensitive to exchange rate movements and external shocks, though improved buffers and fiscal consolidation efforts should help contain price pressures, even as higher global energy prices linked to the Middle East conflict pose upside risks.
Along with the sovereign rating, Moody’s also upgraded the backed foreign currency senior unsecured ratings for the Pakistan Global Sukuk Programme Co Ltd to B3 from Caa1, with a stable outlook, since the associated payment obligations are direct obligations of Pakistan’s government.
The agency also raised Pakistan’s local and foreign currency country ceilings to B1 and B3, from B2 and Caa1 respectively.
It said the two notch gap between the local currency ceiling and the sovereign rating reflects the government’s large footprint in the economy, weak institutions, and high political and external vulnerability risk, while the gap between the foreign and local currency ceilings reflects incomplete capital account convertibility, weak policy effectiveness, and risks of transfer and convertibility restrictions.
