ISLAMABAD — Moody’s has nudged Pakistan back from the precipice of default, upgrading its sovereign credit rating from Caa2 to Caa1 for the first time in a year, while cautioning that the country’s financial footing remains precarious, reported by The Express Tribune. The upgrade, announced Wednesday with a “stable” outlook, reflects what the agency called tangible progress in stabilizing external and fiscal positions after a turbulent stretch that left the economy teetering less than two years ago.
The New York–based ratings giant credited Islamabad’s reform drive under the International Monetary Fund program and improvements in foreign exchange reserves, but warned these reserves remain “well below” levels needed to cover looming debt obligations. Pakistan faces an estimated $24–25 billion in external financing needs this fiscal year, and roughly the same again in 2026–27, keeping the Finance Ministry in a constant cycle of refinancing old loans.
While Moody’s sees no imminent disruption in debt repayment, it stressed that the country’s “debt affordability, though improving, remains among the weakest” of all rated sovereigns. Lower domestic interest rates and fiscal discipline have narrowed the budget deficit to 5.4% of GDP last year, with projections of 4.5–5% this year. Interest payments, once devouring 60% of revenues, are expected to fall to about 40–45% — still high by global standards.
Revenue collection has surged, driven by tighter enforcement and new taxes, pushing receipts to 16% of GDP. Yet, Moody’s warned that sustaining such measures without igniting social unrest will be a formidable challenge, especially as non-tax windfalls like the extraordinary State Bank dividend fade.
The agency praised reductions in power subsidies and progress on energy reforms, but cautioned that any delay in reforms or financing from key partners could swiftly unravel the fragile stability achieved so far.
