Moody’s Ratings has upgraded Pakistan’s credit rating to B3 from Caa1, citing stronger foreign exchange reserves, improving fiscal conditions and lower debt-servicing costs.

The rating agency has kept Pakistan’s outlook stable, indicating that it currently sees a balance between further improvement in the country’s finances and the risks that could still weaken its credit position.

Moody’s upgraded Pakistan’s local and foreign currency issuer and senior unsecured debt ratings to B3 from Caa1. It also raised the rating for Pakistan’s senior unsecured medium-term note program to (P)B3 from (P)Caa1.

According to Moody’s, Pakistan’s external financial position has improved significantly since its previous rating action in August 2025. Foreign exchange reserves have continued to increase as macroeconomic conditions have stabilized.

The agency also pointed to lower domestic borrowing costs following monetary easing and an improving fiscal position. These factors have made Pakistan’s debt burden more manageable.

Moody’s said Pakistan’s economy is also showing greater resilience against external shocks than in previous periods, including during the ongoing Middle East conflict.

However, the agency warned that Pakistan still faces major financial and economic weaknesses.

These include a fragile external position, limited government revenues, weak debt affordability, difficulties in attracting investment and challenges in generating strong productivity-led economic growth.

Moody’s said these weaknesses remain reflected in Pakistan’s B3 rating.

The stable outlook means Moody’s sees potential for further improvement in Pakistan’s credit fundamentals but also recognizes risks that could undermine progress. A deterioration could make it harder for Pakistan to secure foreign-currency financing and reduce the government’s fiscal flexibility.

The upgrade also applies to the backed foreign-currency senior unsecured ratings of The Pakistan Global Sukuk Programme Co Ltd, as Moody’s considers its payment obligations to be direct obligations of the Pakistani government. Its outlook also remains stable.

Moody’s has separately raised Pakistan’s local currency country ceiling to B1 from B2 and its foreign currency country ceiling to B3 from Caa1.

The agency said the gap between Pakistan’s sovereign rating and its local currency ceiling reflects the government’s large role in the economy, weak institutions and high political and external vulnerability.

Pakistan is now rated B- by Fitch Ratings and B by S&P Global Ratings, with both agencies maintaining stable outlooks.