Islamabad, March 12, 2025: Global credit rating agency Moody’s has upgraded Pakistan’s banking sector outlook from stable to positive, citing stronger financial performance and an improving macroeconomic environment after last year’s downturn.
In its latest report, Moody’s highlighted that Pakistani banks hold around 50% of their total assets in sovereign bonds, making them highly exposed to government risk. However, the upgrade reflects improved liquidity conditions and better external financing prospects, aligning with Pakistan’s improving sovereign credit rating.
The rating agency attributed the positive shift to a combination of fiscal and monetary measures, supported by an International Monetary Fund (IMF) program. These efforts have helped stabilize Pakistan’s economy after a challenging period of low growth and high inflation.
Key economic indicators from Moody’s report include GDP growth which is expected to rise to 3% in 2025, up from 2.5% in 2024 and a -0.2% contraction in 2023 and Inflation which is projected to decline to 8% in 2025, a significant improvement from the 23% average inflation in 2024.
The 37-month, $7 billion IMF Extended Fund Facility (EFF), approved in September 2024, has played a crucial role in strengthening Pakistan’s external financing position. Additionally, policy reforms have boosted investor confidence and stabilized the financial sector.
Despite the upgrade, Moody’s cautioned that Pakistan still faces substantial risks, particularly high dependency on external funding, fiscal discipline concerns, political stability risks and banking sector’s exposure to sovereign debt.
Analysts warn that any sovereign distress could negatively impact banks due to their significant investment in government securities.
Moody’s has periodically adjusted Pakistan’s sovereign credit rating in response to economic conditions.
Financial experts view Moody’s latest positive outlook as an encouraging sign, but emphasize the need for structural reforms to sustain long-term economic stability.
