The Moody’s upgrade

EDITORIAL: Moody’s has upgraded Pakistan’s sovereign credit rating to B3 from Caa1, a four-year high on the back of improved governance, stronger external buffers and sustained macroeconomic stabilisation. This prompted Prime Minister Shehbaz Sharif to congratulate the nation and to describe the upgrade as indicative of growing international confidence in the country’s economic policies. He appreciated the efforts of Deputy Prime Minister Ishaq Dar, Field Marshal Asim Munir, Finance Minister Muhammad Aurangzeb and other ministers and relevant officials for their efforts. His appreciation is in line with his belief that recognition encourages cabinet members and their subordinates to make even greater efforts. He followed this rationale in his nominations for the August 14 awards, though, as expected, critics have questioned the number of recipients. The upgrade when compared with Pakistan’s existing rating by the other two international agencies of note, notably Standard and Poor and Fitch, brings the Moody’s upgrade at par with Fitch (an agency that had reaffirmed the B negative rating for Pakistan more than seven months prior i. e. in January this year) while it is one tier down from the S&P’s B rating announced on 22 July 2026. The Moody’s upgrade implies that Pakistan has moved upward from the highly speculative non-investment category to speculative non-investment category while the S&P rating places Pakistan as a country which poses significant risk and remains in the non-investment category. In other words, the rating does not indicate any change in Pakistan’s status as an attractive foreign investment destination, which may partly explain the decline in foreign direct investment inflows from 2477. 3 million dollars in 2024-25 to 1636. 8 million dollars in 2025-26 – a decline of 33. 9 percent. Be that as it may, ratings by these agencies are not only important for all countries in their ability to attract foreign direct investment but also to determine the capacity to borrow at reasonable rates from the market. In recent months, Pakistan has been able to access loans from multilateral lenders, with ongoing International Monetary Fund (IMF) tranche releases not yet facing any major roadblocks — defined as the failure to implement agreed conditions, including the pledge to generate stipulated amounts bilaterally (over $10 billion in rollovers from China and Saudi Arabia continue to be extended), multilaterally, and/or from the commercial sector abroad under the ongoing programme. However, the rate of interest charged on borrowings by the government from the commercial sector abroad remains prohibitively high. The rating agencies’ focus is on assessing the capacity of the authorities to pay back loans, and it is therefore extremely relevant to note that Pakistan has never ever defaulted on any loan though it has often successfully re-negotiated conversion of a short repayment period into a longer term repayment period even though the resulting interest charged does rise as a consequence. The Field Marshal-led critical role as a mediator between Iran and the US has undoubtedly strengthened the country’s international standing and may have accounted for additional support from regional countries – an element that challenges the Interior Minister’s end-July claim that the current governance system has completely collapsed and requires a major structural change. It is equally relevant to note that Pakistan has achieved stabilisation on the back of implementing the agreed IMF conditions even though the reserves are largely debt based while the current account deficit may come under threat as the trade deficit is showing signs of rising. The upgrade must be hailed; however, it is not yet time for complacency and more effort is required to push the country towards investment-grade rating. Copyright Business Recorder, 2026

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