Pakistan’s Rating Will Likely Be Upgraded If Liquidity, External Risks Subside: Moody’s

Moody’s Investors Service (Moody’s) states that if external vulnerability threats and government liquidity declined significantly and sustainably, Pakistan’s rating would probably be raised.

The ratings of Pakistan and other ratings connected to this issuer have undergone a periodic evaluation by the rating agency. Pakistan has maintained its stable outlook and all of its ratings, including its Caa3 long-term issuer grade.

A rating committee conducted the assessment on February 22, 2024, and Moody’s reevaluated the ratings’ appropriateness in light of the pertinent principal methodology(ies) and recent advancements.

This release does not declare a credit rating action to occur, nor does it suggest that one is likely to happen soon.

Pakistan maintains its stable outlook and all of its ratings, including its Caa3 long-term issuer grade.

The government’s extreme liquidity and external vulnerability concerns are reflected in Pakistan’s credit profile since the country’s extremely low levels of foreign exchange reserves are still well below what will be needed to cover its extremely high short- to medium-term external financing needs.

Country’s Credit Profile Is Limited by Political Risks

The nation’s credit profile is further limited by its extremely weak fiscal position and high level of political risk. Pakistan’s big economy and moderate growth potential, which support its moderate economic strength, are also taken into account in the country’s credit profile.

Even though the caretaker government has upheld economic stability and pushed through some reforms over the past few months, unlocking financing from the IMF and other multilateral and bilateral partners and leading to a modest accumulation of foreign exchange reserves, Pakistan’s government liquidity and external vulnerability risks remain extremely high.

Although Pakistan is expected to pay its external debt in full for the fiscal year that ends in June 2024, it is unclear how the country will find the money to satisfy its enormous external financing demands once the present IMF Stand-By Arrangement expires in April 2024.

Furthermore, political dangers are considerable in the wake of the highly contentious general election that was held on February 8, 2024. There is a great deal of uncertainty surrounding the newly elected government’s willingness and capacity to swiftly negotiate a new IMF program shortly after the current one expires in April, even though a coalition government appears to be formed primarily by the Pakistan Muslim League-Nawaz Party and Pakistan People’s Party.

Poor Policy Effectiveness and Weak Governance

It’s possible that the upcoming coalition administration won’t have the political support to carry out the challenging reforms that a successor program will probably need. Pakistan will be severely limited in its ability to obtain loans from other bilateral and multilateral partners unless a new program is agreed upon.


The stable outlook is a reflection of Moody’s judgment that Pakistan’s challenges are commensurate with a Caa3 credit level, with risks that are generally balanced. If this is done quickly and without adding to the pressure from the public, more financing from other multilateral and bilateral partners might assist lower the risk of default. This is something that the IMF would be willing to support even after the current program ends.

In addition, Pakistan’s extremely low reserve position and the sizeable amount of external financing needed over the medium term suggest considerable default risks in the event that money from the IMF and other partners is delayed. Aside from social pressures, governance flaws could make it difficult to meet requirements for further IMF support.

If Pakistan’s government liquidity and external vulnerability risks significantly and sustainably declined, the rating would probably be raised. This can result from a steady rise in foreign exchange reserves. Resuming fiscal consolidation would also be credit-positive if it indicated a significant improvement in debt affordability and included initiatives to raise revenue.

In the unlikely event that Pakistan failed to pay its debts to private creditors and the projected losses to creditors from any restructuring exceeded the parameters of a Caa3 rating, the rating would probably be lowered.

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