Moody's upgrades Pakistan's rating to Caa2

International credit rating agency Moody's Investors Service has upgraded Pakistan's local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3, it announced on Wednesday.

It also changed the country's outlook from stable to positive.

Moody's — one of the world's biggest credit rating agencies — said the upgrade reflected "Pakistan's improving macroeconomic conditions and moderately better government liquidity and external positions from very weak levels previously".

Moreover, the positive outlook reflected "a balance of risks skewed to the upside", it stated. This is the first time Moody's has changed Pakistan's outlook to positive since March 2015.

Pakistan had been downgraded from a B3 rating to Caa1 with a negative outlook in October 2022. It was further downgraded to Caa3 in February last year amid one of its worst economic crisis and delays in reaching a bailout deal with the International Monetary Fund (IMF).

The country later reached a $3 billion Standby Agreement with the IMF in June 2023, followed by a new $7 billion loan program this year.

Moody's said that following the latest IMF agreement, there is now "greater certainty on Pakistan's sources of external financing". It expects the IMF Executive Board to approve the new loan program in the coming weeks.

However, the Caa2 rating reflects the country's weak governance and high political uncertainty, according to Moody's.