Credit rating upgrade

Pakistan's credit rating continues to steadily improve, with Moody's Ratings upgrading the country's sovereign credit rating to B3 from Caa1, with a stable outlook. The upgrade - the latest in a series of positive signals following S&P Global Ratings' similar move last month - reflects growing international recognition that Pakistan's economic trajectory is finally turning a corner. The rating is also the highest Pakistan has received from Moody's since June 2022. The last time the rating was higher than B3 was in November 2007 - one month before Benazir Bhutto's assassination and at the tail end of a very violent and politically volatile year.

The rating agency cited tangible improvements such as higher foreign exchange reserves, currently standing at $17 billion, sufficient to cover nearly three months of imports. The External Vulnerability Indicator, which is based on short- and long-term maturing debt relative to reserves, has also improved from 230% to about 145%. The national debt has become somewhat more affordable, with interest payments falling to roughly 35% of government revenue in FY26, down from 49% the previous year. The painful austerity measures forced upon the country by the IMF-supported reform programme have clearly worked. While we are still a long way from being considered a 'safe' investment destination, Moody's describes us as now being in the "speculative" and "high credit risk", rather than "poor quality" and "very high credit risk."

Still, there is a long way to go before we cross the threshold for what is considered "investment grade", where risk is considered moderate and not particularly speculative. But as policymakers gain more wiggle room for decision-making, it will be important for them to keep putting out budgets that continue to improve economic indicators and increase investor and public trust in the economy. Moody's announcement cautioned that surveys still "point to weak rule of law and control of corruption, as well as limited government effectiveness". Without properly addressing these, the economy will continue to trudge along, but not much more.