Pakistan more resilient to external shocks than in 2022: Moody’s

Pakistan has demonstrated greater resilience to external economic shocks compared to two years ago, according to Moody's Assistant Vice President Grace Lim. The agency attributed this enhanced ability to two years of macroeconomic stabilisation and recent governance initiatives. Lim emphasized that Pakistan's improved capacity to absorb external shocks is not merely due to luck, but rather the result of structural improvements in key economic indicators.

These include lower inflation, stable exchange rates, and higher foreign exchange reserves, which collectively provide the nation with a buffer against economic disruptions. Lim outlined three primary factors that led to Moody's decision to upgrade Pakistan's credit rating: advancements in governance, a strengthened external position, and improved fiscal metrics.

Despite this upgrade to B3, Lim cautioned that Pakistan's credit profile remains vulnerable due to a structurally fragile external position, a limited export base, and limited foreign direct investment. Additionally, while the government's debt affordability, measured by the proportion of government revenue devoted to interest payments, has shown improvement, it still remains weak.

Moody's upgrade of Pakistan's rating to B3, while maintaining a stable outlook, was based on significant progress in governance, the country's external position, and fiscal metrics. The agency highlighted the need for sustained implementation, including the rebuilding of reserves beyond current expectations, continued improvement in access to financing, and fiscal reforms that would meaningfully enhance debt affordability, as potential indicators for further rating upgrades.