ISLAMABAD: Global credit rating agency Moody’s on Monday upgraded Pakistan’s sovereign credit rating from CAA1 to B3.
“We have also upgraded the rating for the senior unsecured MTN programme to (P)B3 from (P)Caa1. Concurrently, we maintained the outlook for the Government of Pakistan at stable,” the credit rating agency said.
In a post on X, Advisor to the Finance Minister Khurram Schehzad said Moody’s has also maintained the outlook of Pakistan’s rating as stable.
He said the upgrade of Pakistan’s credit rating is a testament to growing confidence in Pakistan’s economy and debt repayment capacity.
Khurram Schehzad said the B3 rating is another significant development towards Pakistan’s economic recovery and financial stability.
Moody’s acknowledges Pakistan’s improving economic position
He said the upgrade by the global rating agency is an acknowledgement of Pakistan’s improving economic and financial position.
He further said that an upgraded credit rating could pave the way for improved global investor confidence and Pakistan’s access to international financial markets.
🇵🇰 𝗣𝗮𝗸𝗶𝘀𝘁𝗮𝗻’𝘀 𝗚𝗹𝗼𝗯𝗮𝗹 𝗖𝗿𝗲𝗱𝗶𝘁 𝗦𝘁𝗮𝗻𝗱𝗶𝗻𝗴 𝗥𝗶𝘀𝗲𝘀 𝗙𝘂𝗿𝘁𝗵𝗲𝗿 — 𝗠𝗼𝗼𝗱𝘆’𝘀 𝗨𝗽𝗴𝗿𝗮𝗱𝗲𝘀 𝗥𝗮𝘁𝗶𝗻𝗴 𝘁𝗼 𝟰-𝗬𝗲𝗮𝗿 𝗛𝗶𝗴𝗵
Moody’s Ratings has upgraded Pakistan’s sovereign credit rating to B3 from Caa1, with a Stable Outlook — taking… pic.twitter.com/WSmCgS1iY9
— Khurram Schehzad (@kschehzad) August 24, 2026
The Advisor to the Finance Minister said Moody’s latest decision is a significant positive step in Pakistan’s journey to economic stability.
Last year in August, Moody’s upgraded Pakistan’s ratings to Caa1 from Caa2.
Moody’s said that the upgrade to B3 reflects its expectation that improved governance will help the government sustain recent gains in the country’s external position while strengthening its fiscal metrics.
“Pakistan’s external vulnerability risks have eased further since our last rating action in August 2025, with foreign exchange reserves building steadily, supported by sustained macroeconomic stabilisation.
“At the same time, lower domestic financing costs amid monetary easing and an improved fiscal position have driven a material improvement to Pakistan’s debt affordability,” it said.
Moody’s noted that Pakistan’s strengthening credit profile is also demonstrating greater resilience to external shocks than in previous cycles, including the ongoing Middle East conflict.
Faster improvement in Pakistan’s credit fundamentals
The agency said the stable outlook reflects a balance between the potential for a faster improvement in Pakistan’s credit fundamentals and ongoing risks related to the country’s vulnerabilities. If these risks materialise, they could limit access to foreign-currency financing and further constrain fiscal flexibility, Moody’s said.
The upgrade to B3 from Caa1 also applies to the backed foreign-currency senior unsecured ratings of The Pakistan Global Sukuk Programme Co Ltd, the agency added.
Moody’s also raised Pakistan’s local and foreign currency country ceilings to B1 and B3, from B2 and Caa1 respectively.
Rationale for the upgrade to B3
Moody’s noted that Pakistan’s foreign exchange reserves rose to around $17 billion at the end of July 2026, up from $14 billion a year earlier.
The agency said Pakistan’s External Vulnerability Indicator, which measures short- and long-term debt maturities against foreign exchange reserves, improved to about 145% in 2026 from 230% in 2025.
“Continued implementation of the IMF-supported reform programme has strengthened policy credibility, maintained macroeconomic stabilisation and underpinned financing from official creditors,” Moody’s said.
The credit rating agency also pointed to Pakistan’s gradual return to international capital markets, including a three-year, $750 million Eurobond issued in April 2026 and its debut CNY 1.75 billion (around $250 million) Panda bond issued in May 2026.
“Together, these developments have enabled an accumulation of reserves while allowing Pakistan to meet all of its external obligations in fiscal 2026,” it said.
Moody’s expects Pakistan’s foreign exchange reserves to rise to about $19-20 billion at the end of fiscal 2027 (July 2026 to June 2027) and $20-21 billion in fiscal 2028.
“These projections assume that the government will sustain progress on the IMF programme, enabling timely disbursements from official partners and continued gradual access to market financing,” it said.
Improvements in debt affordability expected to sustain
Moody’s said that Pakistan’s debt affordability has improved materially, from very weak levels.
“Interest payments absorbed about 35% of government revenue in fiscal 2026, down sharply from 49% in fiscal 2025. The improvement primarily reflects a significant reduction in domestic interest rates following a sharp decline in inflation,” said Moody’s.
ALSO READ: Moody’s Upgrades Pakistan Banking Outlook to Stable as Recovery Firms
The agency noted that earlier disinflation allowed the central bank to cut the policy rate significantly.
“We expect the recent improvement in Pakistan’s debt affordability to be durable, underpinned by sustained macroeconomic stability.
“We project Pakistan’s debt affordability to remain broadly stable at about 35% for the next one to two years, still a weak level but a more manageable one. Thereafter, we expect debt affordability to improve gradually as fiscal consolidation reduces the government’s debt burden and interest expenditure,” it said.
