Moody’s raises Pakistan’s credit ratings to ‘Caa2’

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

According to Mettis Global, the rating of the senior unsecured medium-term note (MTN) program has also been upgraded from Caa3 to Caa2.

Also, Moody’s has changed its outlook on the government of Pakistan from stable to positive.

The upgrade reflects an improvement in Pakistan’s macroeconomic conditions and a modest increase in government liquidity and external positions, albeit at relatively weak levels.

Moody’s noted that Pakistan’s default risk has now been downgraded to Caa2.

The agency highlighted that after the staff-level agreement with the International Monetary Fund (IMF) on July 12, 2024, there has been greater confidence in Pakistan’s external financing sources.

The deal includes a 37-month Extended Fund Facility (EFF) worth $7 billion. Moody’s expects the IMF board to approve the facility in the coming weeks.

Pakistan’s foreign exchange reserves have nearly doubled since June 2023, though they are still short of the amount needed to meet its external financing needs, Moody’s report said.

The country depends on timely support from government partners to meet its external debt obligations.

Pakistan needs more improvements

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

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