Global rating agency Moody’s has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3.
According to the one of the top international rating agencies, the upgrade to Caa2 reflects Pakistan’s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels.
It noted that concurrently, the outlook for Pakistan is changed to positive from stable.
Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating. There is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility of seven billion dollars.
The rating agency expected the IMF will approve the Extended Fund Facility in the next few weeks, noting that Pakistan’s foreign exchange reserves have about doubled since June 2023.
It highlighted that the positive outlook reflected a balance of risks skewed to the upside. It captures the possibility that the government is able to further lower its government liquidity and external vulnerability risks, and achieve a better fiscal position than we currently expect, supported by the IMF programme.
Besides, sustained reform implementation, including revenue-raising measures, can increase the government revenue base and improve Pakistan’s debt affordability.
A record of completing IMF reviews on a timely manner would also allow Pakistan to continually unlock financing from official partners, sufficient to meet its external debt obligations and support further rebuilding of its foreign exchange reserves.
