Islamabad: In a significant move reflecting improved economic stability, Moody’s has upgraded Pakistan’s credit ratings from Caa3 to Caa2. The global rating agency also revised the country’s outlook from stable to positive, indicating a reduced risk of default and better prospects for external financing, following a new agreement with the IMF.

According to Ministry of Information and Broadcasting, the upgrade to Caa2 is driven by Pakistan’s enhanced macroeconomic conditions, along with moderately improved government liquidity and external positions, which previously stood at very weak levels. The agency noted the positive change in outlook is due to a balance of risks now skewed to the upside, potentially leading to further improvements in Pakistan’s fiscal health and external vulnerabilities.

The decision comes after Pakistan secured a staff-level agreement with the International Monetary Fund (IMF) on July 12, 2024, for a 37-month Extended Fund Facility worth seven billion dollars. Moody’s anticipates the IMF’s approval of this facility in the coming weeks. Since June 2023, Pakistan’s foreign exchange reserves have approximately doubled, bolstering the country’s financial stability.

This positive outlook is also supported by potential sustained reforms, including those aimed at increasing government revenue and improving debt affordability. Successful and timely completion of IMF reviews could enable Pakistan to continue accessing financing from official partners, essential for meeting external debt obligations and further rebuilding foreign exchange reserves.