Global credit rating company Moody‘s has upgraded Pakistan’s banking sector outlook from stable to positive, citing improved financial performance and a rebound in macroeconomic conditions from the previous year’s crisis as the reasons.
According to the agency’s most recent data, Pakistani banks own around half of their total assets in sovereign bonds, indicating a significant investment in government securities.
In keeping with the government’s upward trend in credit ratings, the upgrading reflects a better external financing environment and a more favorable liquidity situation.
Since banks continue to be heavily exposed to government risk due to their sizeable holdings of sovereign debt, Moody’s says the outlook improvement is consistent with Pakistan’s improved sovereign credit rating.
The agency stated that the country’s economy has stabilized thanks to monetary and fiscal policies as well as an International Monetary Fund (IMF) program.
With Moody’s projecting a GDP growth rate of 3% for 2025, up from 2.5% in 2024 and a fall of 0.2% in 2023, Pakistan’s economy has begun to show signs of recovery.
After rising to an average of 23% in 2024, inflation is predicted to decline sharply to about 8% in 2025.
The $7 billion, 37-month IMF Extended Fund Facility, which was authorized in September 2024, has been a vital safety net for Pakistan’s external funding requirements, the rating agency noted.
The financial sector has stabilized, and investor confidence has increased as a result of this and legislative changes.
Moody’s cautioned that risks still exist despite the upgrade, especially in light of Pakistan’s heavy reliance on foreign assistance, budgetary restraint, and political stability. In the event of any sovereign trouble, the banking industry’s exposure to government securities also presents a danger.
