Islamabad (TDI): Moody’s, a global credit rating agency, has revised Pakistan’s banking sector outlook from stable to positive, attributing the change to stronger financial performance and a recovery in macroeconomic conditions from last year’s downturn.
The agency’s latest report noted that Pakistan’s banks are heavily invested in government securities, holding around 50 percent of their total assets in sovereign bonds.
The upgrade reflects a more favorable liquidity position and improved external financing conditions, in line with the government’s positive credit rating trend.
According to Moody’s, the outlook upgrade aligns with the improved sovereign credit rating of the country as banks remain highly exposed to government risk through their considerable holdings of sovereign debt.
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The agency noted that Pakistan’s fiscal and monetary measures, coupled with an International Monetary Fund (IMF) program, have helped stabilize its economy.
Pakistan’s economy has shown signs of recovery, with Moody’s forecasting a GDP growth rate of 3 percent for 2025, up from 2.5 percent in 2024 and a contraction of 0.2 percent in 2023.
Inflation, which had soared to an average of 23 percent in 2024, is likely to ease significantly to around 8 percent in 2025.
The rating agency underlined that the 37-month, $7 billion IMF Extended Fund Facility, approved in September last year, has provided a crucial buffer for the country’s external financing needs.
This, along with policy reforms, has boosted investor confidence and stabilized the financial sector.
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Despite the upgrade, the agency warned that risks remain, especially regarding Pakistan’s high dependency on external funding, fiscal discipline, and political stability.
The banking sector’s exposure to government securities also poses a danger in case of any sovereign distress.
