Pakistan gets a boost to its economic standing as Moody’s Ratings upgraded the country’s sovereign credit rating to B3 from Caa1, citing stronger foreign exchange reserves, improved fiscal conditions, lower financing costs and greater resilience against external shocks.
The upgrade applies to Pakistan’s local- and foreign-currency issuer ratings as well as senior unsecured debt. Moody’s also raised the rating on Pakistan’s senior unsecured medium-term note programme to (P)B3 from (P)Caa1. The agency maintained Pakistan’s outlook at stable, indicating that it expects recent improvements to continue while warning that important economic vulnerabilities remain.
Moody’s previously upgraded Pakistan’s rating from Caa2 to Caa1 in August 2025. The global agency said the latest upgrade shows expectations that improvements in governance and economic management will help Pakistan preserve gains in its external position and strengthen its fiscal performance.
Pakistan’s external position has improved over the past year. Moody’s estimates that foreign exchange reserves reached approximately $17 billion at the end of July 2026, up from around $14 billion in July 2025. The reserves are now sufficient to cover nearly three months of imports, providing a stronger buffer against external financing pressures.
Pakistan’s External Vulnerability Indicator has also improved sharply. The ratio of short- and long-term external debt maturities to foreign exchange reserves is estimated at around 145% in 2026, compared with 230% in 2025.
Moody’s said continued implementation of the IMF-supported reform programme has strengthened policy credibility, supported macroeconomic stability and helped secure financing from official creditors.
Pakistan also gradually regained access to international capital markets, raising $750 million through a three-year Eurobond in April 2026 and issuing its first CNY1.75 billion, or roughly $250 million, Panda bond in May 2026. The agency expects reserves to rise further to $19–20 billion by the end of fiscal 2027 and $20–21 billion in fiscal 2028, assuming continued IMF progress and access to official and market financing.
Another major factor behind the upgrade is improving debt affordability. Moody’s estimates that interest payments consumed about 35% of government revenue in fiscal 2026, down dramatically from 49% in fiscal 2025. The improvement was largely driven by falling inflation and lower domestic interest rates, which allowed the central bank to ease monetary policy and reduced borrowing costs.
Debt affordability is expected to remain around 35% over the next one to two years before gradually improving as fiscal consolidation reduces the government’s debt burden and interest expenses.
Despite upgrade, Moody’s warned that Pakistan still faces serious structural weaknesses, including a fragile external position, high debt-servicing costs, a narrow revenue base and difficulties attracting investment and generating high-productivity economic growth. The ongoing Middle East conflict and elevated global energy prices also pose risks, particularly through higher oil costs and inflation.
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