Reporting snapshot · 25 August 2026. Sovereign ratings are opinions about credit risk and can change when economic conditions, policy or external financing shift.
What happened
Global ratings agency Moody’s upgraded Pakistan’s sovereign credit rating to B3 from Caa1 and maintained a stable outlook, according to an announcement reported by Dawn on 25 August 2026. The country regained the B3 rating with a stable outlook after six years; it last held that level in August 2020.
Moody’s said the upgrade reflected expectations that improvements in governance would allow the government to sustain recent gains in the country’s external position and strengthen fiscal metrics.
“The upgrade to B3 reflects our expectations that improvements in governance will allow the government to sustain the recent improvements in the country’s external position and strengthen fiscal metrics,” Moody’s said in the announcement.
The agency also raised Pakistan’s local and foreign currency country ceilings to B1 and B3, from B2 and Caa1 respectively. It said foreign exchange reserves had risen to about $17 billion at the end of July 2026, from $14 billion a year earlier, enough to cover nearly three months of imports. Pakistan’s external vulnerability indicator improved to about 145 per cent in 2026 from 230 per cent in 2025, it said.
Why it matters
The upgrade lowers the risk premium attached to Pakistani sovereign debt and can feed into borrowing costs and investor sentiment. Moody’s cited better debt affordability, noting that interest payments absorbed about 35 per cent of government revenue in fiscal 2026, down from 49 per cent in fiscal 2025. It also pointed to continued implementation of the International Monetary Fund-supported reform programme and a gradual return to market financing, including a three-year, $750 million Eurobond in April 2026 and a debut Panda bond of 1.75 billion yuan, or about $250 million, in May 2026.
For a government managing large external financing needs, the rating change is a signal that official creditors and markets have more room to roll over or extend funds. Moody’s projected reserves of about $19-20 billion at the end of fiscal 2027 and $20-21 billion in fiscal 2028, subject to continued progress on the IMF programme.
What remains uncertain
Moody’s warned that the credit profile remains vulnerable because of a structurally fragile external position, weak debt affordability, a relatively narrow revenue base and constraints on attracting investment and stimulating high-productivity growth. It said these constraints are already embedded in the B3 rating, and that the stable outlook balances the potential for faster improvement against risks that could weaken access to foreign-currency financing. How the government uses the improved standing, and whether the reform programme stays on track, will shape the next review.
Sources & reporting notes
This is a summary of published reporting, not independent reporting. Details and quoted remarks are as carried by the cited source, which was reviewed on 25 August 2026.
- Dawn — "'Stability' prompts Moody's to lift Pakistan's credit rating"25 August 2026 · The upgrade to B3, the cited reserves and debt-affordability figures, and Moody's stated reasons and risks.
