Moody’s upgrades Pakistan’s outlook, citing alignment with the country’s improved sovereign credit rating, signaling cautious optimism for economic stability
News Desk
HONG KONG: Pakistan’s banking sector has received a much-needed boost as Moody’s Investors Service revised its outlook from stable to positive, a shift that reflects growing confidence in the country’s economic trajectory. The global credit rating agency attributed the upgrade to a stronger financial performance within the banking industry and a notable recovery in macroeconomic conditions after the turbulence of previous years.
In its latest assessment, Moody’s highlighted that Pakistani banks remain heavily exposed to government securities, with sovereign bonds accounting for nearly half of their total assets. This exposure, while stabilizing liquidity, also underscores the close link between the banking sector’s health and the government’s fiscal position. The improved rating aligns with Pakistan’s overall sovereign credit outlook, signaling a more favorable external financing environment and a relatively stronger fiscal position than in recent years.
The agency noted that Pakistan’s economy has been stabilizing, aided by a combination of fiscal and monetary measures, as well as the critical support of an International Monetary Fund (IMF) programme. After a prolonged period of economic strain, the country is beginning to show signs of recovery. Moody’s projects that GDP growth will reach 3% in 2025, up from 2.5% in 2024 and a contraction of 0.2% in 2023, a trajectory that suggests Pakistan is gradually regaining economic momentum.
Inflation, which had wreaked havoc on household incomes and business costs by averaging 23% in 2024, is expected to ease significantly to 8% in 2025. The rating agency pointed to the $7 billion IMF Extended Fund Facility, approved in September 2024, as a crucial factor in stabilizing Pakistan’s external financing needs and restoring investor confidence. The implementation of policy reforms under the IMF’s watch has played a key role in bolstering the financial sector, preventing further deterioration in reserves, and supporting the rupee.
However, despite the improved outlook, Moody’s cautioned that risks remain. Pakistan’s heavy reliance on external funding, the challenge of maintaining fiscal discipline, and ongoing political uncertainty could still pose significant hurdles. The banking sector’s deep involvement in government securities, while providing short-term liquidity, also leaves it vulnerable in the event of any sovereign financial distress.
