Moody’s has raised Pakistan’s credit rating for both local and foreign debt from Caa2 to Caa1 and changed the outlook from positive to stable. This upgrade comes after clear signs that Pakistan’s economic position is improving, helped by progress in the IMF’s Extended Fund Facility program.
Foreign reserves have gone up to $14.3 billion by July 25, 2025, enough to cover about ten weeks of imports. This is a big jump from $9.4 billion in August 2024. Pakistan also completed the first IMF program review on time, which unlocked $1 billion in May 2025. Another $1 billion was borrowed commercially in June 2025, backed by a $500 million guarantee from the Asian Development Bank.
Moody’s noted that Pakistan’s finances are getting stronger. The tax base is growing, and government revenue rose from 12.6% of GDP in 2024 to about 16% in 2025, mostly from higher tax income.
Still, there are challenges. A large chunk of government income, around 40 to 45%, will go toward paying interest on debt in 2026 and 2027. The fiscal deficit is expected to shrink to about 4.5-5% of GDP in 2026 from 5.4% in 2025.
The stable outlook means the risks are balanced. Things could improve faster if reforms go smoothly and financing remains on track. But delays in reforms could slow progress.
Moody’s also upgraded the foreign currency sukuk program rating and raised Pakistan’s country ceilings for both local and foreign currency.