Islamabad: Following Fitch’s upgrade last month, Moody’s has followed suit by elevating Pakistan’s credit rating from Caa3 to Caa2. In addition to this upgrade, Moody’s has also adjusted the outlook to positive from stable.
Moody’s recent upgrade of Pakistan’s credit rating and outlook is far more than a mere notch higher on a rating scale—it reflects a growing global confidence in Pakistan’s capacity to navigate its financial challenges and lay the foundation for sustainable economic growth. This development offers the economy crucial breathing space, enabling the government to concentrate on implementing longer-term reforms.
With today’s upgrade, alongside Fitch’s earlier revision, Pakistan is now better positioned to access international capital markets on more favorable terms. This paves the way for the potential issuance of Eurobonds and Panda bonds at more competitive rates, a move that could significantly lower borrowing costs, alleviate debt servicing pressures, and create essential fiscal space.
Following are the key takeaways from Moody’s report: (i) IMF Agreement and External Financing: The IMF’s staff-level agreement for a USD 7bn Extended Fund Facility (EFF) provides greater certainty over Pakistan’s external financing sources for the next two to three years;(ii) approval of the EFF by the IMF Board is expected soon, which could unlock additional funding from other multilateral and bilateral partners ; and (iii) Pakistan’s foreign exchange reserves have nearly doubled since Jun’23, reaching US 9.3bn in Aug’24, equivalent to just under two months of imports.
However, reserves remain below the level required to meet the country’s external financing needs, highlighting the importance of continued IMF program progress.
Pakistan’s external financing needs are estimated at USD 26bn for FY25, with USD 22bn required for external principal debt repayments and $ 4 billion to cover the current account deficit.
