Moody’s Ratings has upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to Caa2 from Caa3 owing to improvement in macroeconomic conditions.

“We have also upgraded the rating for the senior unsecured MTN programme to (P)Caa2 from (P)Caa3. Concurrently, the outlook for Government of Pakistan is changed to positive from stable,” the rating agency said in a statement.

The upgrade to Caa2 reflects Pakistan’s improving macroeconomic conditions and moderately better government liquidity and external positions, from very weak levels.

Accordingly, Pakistan’s default risk has reduced to a level consistent with a Caa2 rating, as per the Moody’s. “There is now greater certainty on Pakistan’s sources of external financing, following the sovereign’s staff-level agreement with the IMF on 12 July 2024 for a 37-month Extended Fund Facility (EFF) of $7 billion.”

Moreover, the rating agency expected the IMF Executive Board to approve the Pakistan loan deal in the next few weeks.

Pakistan’s foreign exchange reserves have about doubled since June 2023, although they remain below what is required to meet its external financing needs, it said.