Moody’s upgrades Pakistan’s sovereign credit rating to B3

Moody's lifted its grade on Pakistan to B3 from Caa1 on Monday, keeping the outlook at stable as the government prepares to tap overseas debt markets. The agency said governance indicators still show weak rule of law, corruption control and government effectiveness. Prime Minister Shehbaz Sharif welcomed the upgrade, though the single-notch step is seen as leaving credit risk largely unchanged, according to The Express Tribune.

According to Moody's, the external account is structurally vulnerable, given a narrow export base, very little foreign direct investment and heavy dependence on remittances. Reserves are expected to reach only $20 billion by fiscal year end, at least $1 billion short of the IMF understanding. The agency added that staying on the IMF programme would let Pakistan cover external financing needs of roughly $21 billion in fiscal 2027 and about $30 billion in fiscal 2028, citing IMF estimates.

Debt affordability has improved materially, as interest costs claimed roughly 35% of government income in fiscal 2026, compared with 49% a year earlier. The agency credits most of the gain to lower domestic interest rates, which followed a sharp fall in inflation. Moody's still calls debt affordability weak and a key constraint, and says the stable outlook weighs possible faster progress against existing vulnerabilities. Standard & Poor's raised its rating on Pakistan to B on July 22, 2026, citing stronger political and institutional stability.