Moody’s Upgrades Pakistan’s Banking Sector Outlook to Positive
Key Highlights:
- Moody’s revises Pakistan’s banking sector outlook from stable to positive due to improved financial performance and economic recovery.
- Banks hold 50% of total assets in government securities, making them highly exposed to sovereign risk.
- Economic stability driven by fiscal and monetary policies, supported by the IMF’s $7 billion Extended Fund Facility.
Economic Recovery & Forecasts:
- GDP growth projected at 3% in 2025, up from 2.5% in 2024 and a contraction of 0.2% in 2023.
- Inflation expected to drop from 23% in 2024 to 8% in 2025.
- Stronger external financing conditions improving investor confidence and financial stability.
Challenges & Risks:
- High dependency on external funding and sovereign debt exposure remain key vulnerabilities.
- Political stability and fiscal discipline critical for sustained growth.
- Structural reforms needed in tax collection, governance, and foreign investment to ensure long-term resilience.
Moody’s has adjusted Pakistan’s rating over the years, downgrading it to Caa3 in 2023 due to liquidity concerns but later upgrading it to Caa2 in August 2024 as economic conditions improved. The recent positive outlook signals recovery but underscores the need for continued reforms to maintain momentum.
