Moody's Upgrades Pakistan to B3 as External Risks Ease
KARACHI: Moody's Ratings has upgraded Pakistan's sovereign credit rating to B3 from Caa1 and retained a stable outlook, marking another improvement in the country's assessment by a major international ratings agency. The decision covers Pakistan's local- and foreign-currency issuer ratings as well as senior unsecured debt and follows what Moody's described as progress in governance, external stability and government finances.
The agency also raised the rating assigned to Pakistan's senior unsecured medium-term note programme to (P)B3 from (P)Caa1. The same upgrade applies to the backed foreign-currency senior unsecured obligations of the Pakistan Global Sukuk Programme Company Limited, which Moody's treats as direct obligations of the Government of Pakistan. The outlook on those obligations also remains stable.
Moody's said its decision reflects an expectation that stronger governance and policy implementation will help Pakistan preserve recent gains in its external accounts while supporting further improvement in fiscal indicators. The agency noted that external vulnerability has eased since its previous rating action in August 2025, helped by a steady rebuilding of foreign-exchange reserves and broader macroeconomic stabilisation.
Debt affordability has also improved from the severe pressures seen during earlier phases of Pakistan's economic crisis. Lower domestic borrowing costs following monetary easing, combined with a better fiscal position, have reduced the burden of government financing. Moody's assessment indicates that these changes have made the sovereign credit profile more resilient than in previous periods of external stress, including during the continuing geopolitical disruption in the Middle East.
The upgrade does not mean Pakistan has moved beyond its longstanding economic vulnerabilities. Moody's continues to identify the country's external position as structurally fragile and considers debt affordability weak despite recent improvement. It also pointed to Pakistan's relatively narrow revenue base and persistent difficulties in attracting investment and generating sustained, high-productivity economic growth. Those constraints remain reflected in the B3 rating.
The agency maintained a stable outlook because it sees competing possibilities ahead. Pakistan's fiscal and external fundamentals could strengthen faster than expected if reform momentum continues, but financing pressures could return if external or domestic risks intensify. Such setbacks could make access to foreign-currency funding more difficult and reduce the government's room to manage its budget and debt obligations.
The Moody's action comes about a month after S&P Global Ratings raised Pakistan's long-term sovereign rating to B from B-, also with a stable outlook. The sequence of upgrades is significant for Islamabad because sovereign ratings influence how international lenders and investors assess the risk of financing the country. A stronger rating can support investor confidence and, over time, may help Pakistan obtain external financing on comparatively better terms, although actual borrowing costs also depend on global markets and domestic economic conditions.
Pakistan's government has repeatedly presented improving sovereign ratings and renewed access to international capital markets as evidence that its stabilisation programme is producing results. Finance Minister Muhammad Aurangzeb has previously highlighted fiscal consolidation, reserve accumulation and continued reforms under international financing programmes as central to restoring confidence. The next test will be whether authorities can sustain those gains while expanding the tax base, containing debt costs, maintaining external buffers and generating stronger investment-led growth. Moody's also raised Pakistan's local-currency country ceiling to B1 and its foreign-currency ceiling to B3, reinforcing the broader improvement in its assessment while signalling that significant structural challenges remain.