Moody’s has upgraded Pakistan’s sovereign credit rating from Caa1 to B3, marking an improvement in the country’s credit profile. The global ratings agency also kept Pakistan’s outlook stable.
The upgrade reflects stronger foreign exchange reserves, improved fiscal conditions and lower domestic borrowing costs. Moody’s also expects better governance and continued economic reforms to support Pakistan’s financial position.
Quick Facts
| What happened? | Moody’s upgraded Pakistan’s sovereign credit rating from Caa1 to B3. |
| New rating | B3 |
| Previous rating | Caa1 |
| Outlook | Stable |
| Foreign exchange reserves | About $17 billion at the end of July 2026 |
| Key reason | Stronger external position, improved fiscal conditions and better debt affordability. |
| Main risks | External financing needs, weak revenue collection and political and economic vulnerabilities. |
Why Moody’s Upgraded Pakistan’s Rating
Moody’s said Pakistan has made progress in reducing external financial risks since its previous rating action in August 2025.
Foreign exchange reserves reached about $17 billion by the end of July 2026. That compares with around $14 billion a year earlier. The reserves now cover nearly three months of imports.
Pakistan’s External Vulnerability Indicator also improved. It fell to about 145% in 2026, compared with 230% in 2025. This shows that the country has a stronger reserve buffer against external debt pressures.
IMF Programme Supports Economic Stability
Pakistan’s continued work under the IMF supported reform programme has also improved policy credibility.
The programme has helped maintain economic stability and support financing from official creditors. Pakistan has also started returning gradually to international debt markets.
In April 2026, the country issued a $750 million Eurobond with a three year maturity. In May, Pakistan issued its first CNY 1.75 billion Panda bond, worth about $250 million.
Pakistan’s Reserves Expected to Rise
Moody’s expects Pakistan’s foreign exchange reserves to increase further if the government continues implementing IMF reforms.
The agency projects reserves of around $19 billion to $20 billion by the end of fiscal 2027. It expects reserves to reach about $20 billion to $21 billion in fiscal 2028.
Continued IMF support could help Pakistan manage external financing needs of about $21 billion in fiscal 2027 and around $30 billion in fiscal 2028.
However, the country will still face significant external financing pressure. Rising oil prices and geopolitical tensions could also create new risks.
Debt Affordability Shows Improvement
Pakistan has also made progress in managing its debt costs.
Interest payments consumed about 35% of government revenue in fiscal 2026. That was a major improvement from 49% in fiscal 2025.
Lower domestic borrowing costs and tighter fiscal management have helped improve debt affordability. Moody’s expects these gains to continue if Pakistan maintains macroeconomic stability.
Despite the upgrade, Moody’s said Pakistan continues to face important economic challenges.
The country still has a fragile external position, a narrow tax revenue base and limited investment capacity. Weak institutions and political risks also remain concerns.
Pakistan also needs stronger economic growth and more productive investment. A failure to maintain reforms could put pressure on foreign currency financing and reduce the government’s fiscal flexibility.
What the B3 Rating Means
The move from Caa1 to B3 represents a positive change in Pakistan’s sovereign credit rating. However, B3 remains a speculative grade rating and indicates that the country still faces significant financial and economic risks.
The stable outlook means Moody’s currently sees a balance between possible further improvements and the risks that could weaken Pakistan’s credit position.
Overall, the upgrade signals greater confidence in Pakistan’s recent economic stabilisation. Continued IMF reforms, stronger reserves and better debt management will be important for further rating improvements.
