Moody's lifts Pakistan sovereign rating to B3 from Caa1, cites improved governance and easing of external risk

Dawn reported that Moody's has moved Pakistan's credit standing from Caa1 up to B3, while leaving its outlook unchanged at stable. The agency linked the decision to its expectation that better governance will help the state preserve recent gains in its external accounts and strengthen public finances. Concurrent with the decision, the agency increased the caps on local-currency and foreign-currency ratings, now B1 and B3 respectively, previously B2 and Caa1.

According to the rating agency, foreign exchange reserves reached about $17 billion at the end of July 2026, up from $14bn a year earlier, which covers close to three months of imports. Its External Vulnerability Indicator stood at roughly 145 per cent for 2026, against 230pc for 2025. Interest costs took roughly 35pc of state revenue in fiscal 2026, a steep drop from 49pc a year earlier.

Moody's cautioned that the stable outlook weighs faster progress against risks that could limit borrowing in foreign currency and reduce fiscal room. Pakistan's external position remains exposed to shocks, including elevated oil prices tied to the Middle East conflict, though projected reserves of between $19bn and $20bn by the end of FY27 would offer a bigger buffer. The agency also expects inflation to stay sensitive to exchange-rate moves, with its policy framework helping to limit the effect of higher global energy prices.