At long last, Moody’s upgrades country’s rating

IMF likely to approve EFF in a few weeks, says ratings agency

IN a sign that Pakistan’s economy is on the mend, global ratings agency Moody’s has upgraded the country’s ratings for local and foreign currency issuer and senior unsecured debt from Caa3 to Caa2.

One of the world’s top three rating firms said it decided to upgrade the country’s ratings because of its “improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels”.

“Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating,” it said in a note, adding that there was now “greater certainty” on the country’s sources of external financing following the staff-level agreement with the International Monetary Fund (IMF) in July for an extended fund facility (EFF) of $7 billion.

In February, Moody’s had retained Caa3 as Pakistan’s long-term credit rating, which indicated a higher probability of default and a greater degree of investment risks amid weak debt affordability.

The ratings agency said it expected the Fund to approve the EFF in the next few weeks, noting that the country’s foreign reserves had doubled since June 2023. However, it noted that they still remained “below what is required to meet its external financing needs”.

As for the outlook, the agency said, “The positive outlook reflects 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,” it said.

It added that “sustained reform implementation, including revenue-raising measures, can increase the government revenue base and improve Pakistan’s debt affordability”.

However, it cautioned that there remained an “uncertainty around the government’s ability to sustain reform implementation”.