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Pakistan Upgraded to Caa1 on Improving Reserves and Fiscal Position
August 14, 2025
Pakistan was upgraded to Caa1 with a stable outlook by Moody’s. This reflects a gradual strengthening of the country’s external and fiscal profiles under the IMF’s Extended Fund Facility (EFF) programme, despite continued political uncertainty. Apart from meeting its debt obligations in FY2025, Pakistan has also added to its foreign exchange reserves which rose to $14.3bn as of 25 July 2025 vs. $9.4bn the prior year. The improvement has been supported by the on-schedule completion of the first IMF programme review, which unlocked $1bn disbursements in May 2025. It has also secured a $1bn commercial loan in June 2025, with a $500mn policy-based guarantee by the Asian Development Bank (ADB). Pakistan has also unlocked new financing sources – a 28-month arrangement under the IMF Resilience and Sustainability Facility (RSF) worth about $1.4bn, and a 10-year country partnership framework with the World Bank worth an indicative financing envelope of $20bn.
On the fiscal side, Pakistan government revenue, driven by stronger tax collection and enforcement, rose to 16% of GDP in FY2025, vs. 12.6% in FY2024. Fiscal deficit narrowed to 5.4% of GDP, with Moody’s expecting it to decline further to 4.5-5% by FY2026. Moody’s also expects government interest payments to drop to 40-45% of revenue in FY2026-27, a significant decline from about 60% in FY2024.
Pakistan’s 7.875% 2036s have jumped higher by 0.9 points, currently trading at 91.1 and yielding 9.2%.
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