Global credit rating agency Moody’s Investor Service has raised Pakistan’s sovereign credit rating from Caa2 to Caa1, accompanied by a revised “stable” outlook, signaling modest improvements in the country’s external and fiscal position. The move comes amid heightened diplomatic proximity between Pakistan and former U.S. President Donald Trump.
Key Highlights:
- Rating and Outlook Upgrade: Moody’s elevated Pakistan’s rating by one notch to Caa1 from Caa2 and shifted its outlook from positive to stable.
- Reasons for Upgrade:
- Improving External Financial Position supported by reforms under the IMF’s Extended Fund Facility (EFF) program.
- Positive signals from a $7 billion IMF bailout helped stabilize Pakistan’s economy.
- Reform momentum and increasing foreign exchange reserves also underpinned the upgrade.
- Caveats Highlighted by Moody’s:
- Despite the upgrade, Pakistan remains in a high-risk category, with weak debt affordability, fragile governance, and persistent political uncertainty.
- The country continues to be reliant on timely official financing, and delays in reforms could derail gains.
- Market Reaction: Following the news, Pakistan’s international bonds inched up by one cent to between 90 and 100 cents on the dollar, marking their highest levels since the 2022 debt crisis when prices had slumped to around 30 cents.
- Official Statements:
- Finance Minister Mohammad Aurangzeb expressed optimism, stating that improved economic indicators afford room for interest rate cuts from the current 11%, likely by year-end.
- Prime Minister Shehbaz Sharif hailed the rating improvement as proof that Pakistan’s economic policies are moving in the right direction.
What Does “Caa1” Mean?
In Moody’s rating scale, a “Caa” category signals poor standing and very high credit risk. The numeric modifier “1” represents the higher end of this category, indicating a slight improvement but still significant default risk.
