Moody’s Upgrades Pakistan’s Banking Outlook Amid Economic Recovery

ISLAMABAD – Moody’s, the global credit rating agency, has upgraded Pakistan’s banking sector outlook to positive, reflecting the country’s improving macroeconomic conditions and the banking system’s resilience. This upgrade highlights Pakistan’s better financial performance over the past year and its enhanced economic stability.

In a statement, Moody’s noted that the positive outlook is driven by the government’s improved financial commitments, particularly in managing the banking sector’s large exposure to government securities. These securities account for nearly half of the total assets held by banks in Pakistan.

Despite the improvement in outlook, Moody’s remains cautious about Pakistan’s long-term debt sustainability. The agency warned that weak fiscal positions and external vulnerabilities still pose risks to the country’s financial stability.

Moody’s also projected a 3% GDP growth for Pakistan in 2025, marking a recovery from the predicted 2.5% growth in 2024, following the country’s economic contraction of -0.2% in 2023. The financial agency further highlighted a sharp decline in inflation, forecasting a drop to around 8% in 2025, compared to an average of 23% in 2024. This reduction could boost private-sector spending and investment.

While acknowledging the easing of monetary policy and the decline in inflation, Moody’s pointed out challenges facing banks in Pakistan, particularly their high exposure to government securities. However, the agency expects the banks to maintain adequate capital buffers due to strong cash generation and controlled loan growth.

The ongoing $7 billion IMF Extended Fund Facility, approved in September 2024, provides Pakistan with a reliable source of external financing for the years ahead. Moody’s also projected a positive economic outlook for the country through 2026, forecasting a GDP growth of 4% in that year.

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While the financial outlook for Pakistan is improving, Moody’s cautioned that external risks and the need for fiscal reforms remain critical factors for the country’s long-term economic stability.