ISLAMABAD: Moody’s has upgraded Pakistan’s sovereign credit rating from Caa1 to B3, while maintaining a stable outlook, citing improvements in governance, the country’s external position, and fiscal metrics, the global rating agency said.

The upgrade from Caa1 to B3 reflects growing confidence in Pakistan’s economic position and debt repayment capacity, marking a positive step toward greater financial stability and improved investor confidence.

“The upgrade to B3 reflects our expectations that improvements in governance will allow the government to sustain the recent improvements in the country's external position and strengthen fiscal metrics,” the statement added.

According to Moody’s, Pakistan's strengthening credit profile is also demonstrating greater resilience to external shocks than in previous cycles, including the ongoing Middle East conflict.

“The stable outlook balances a potentially faster improvement in Pakistan's credit fundamentals against outstanding risks related to the vulnerabilities above, which, if materialized, could weaken access to foreign-currency financing and further reduce fiscal flexibility,” it added.

Pakistan's Prime Minister Shehbaz Sharif congratulated the nation and officials, including Foreign Minister Ishaq Dar, Chief of Army Staff and Chief of Defense Forces Field Marshal Syed Asim Munir, and Finance Minister Muhammad Aurangzeb, for this “commendable achievement”, according to a statement by the Government of Pakistan on X.

PM Sharif added that the improvement in Pakistan's credit rating is a manifestation of international confidence in the government's economic policies and reforms.

“The government has taken effective measures to stabilize the economy and improve the external sector. As a result of the government's continuous efforts and reforms for economic stability, international institutions' confidence in Pakistan is increasing," the statement added.

Earlier, S&P Global Ratings upgraded Pakistan's long-term sovereign credit rating to B from B-, reflecting stronger external finances, improved institutional effectiveness, and ongoing macroeconomic stabilization.

The upgrade comes as Pakistan’s improving credit profile is also drawing positive assessments from other international rating analysts. Speaking on Pakistan TV Digital’s South Speaks with Saqib earlier this month, S&P Global Sovereign Credit Ratings Director YeeFarn Phua said greater political stability is helping Pakistan implement IMF-backed reforms, strengthen fiscal management and improve institutional capacity.

“This was predicated on the fact that we view that now Pakistan's political settings are relatively more stable,” Phua added.

In a post on X, the advisor to the finance minister, Khurram Schehzad, said, “After S&P, Moody's also upgrades Pakistan's sovereign rating to B3 from CAA1.”

The upgrade by Moody's is an acknowledgement of Pakistan's improving economic and financial position.

The B3 rating is another important step towards Pakistan's economic recovery and financial stability.

An improved credit rating can pave the way for improved global investor confidence and Pakistan's access to international financial markets.

The latest upgrade is expected to strengthen investor confidence and support Pakistan's return to international capital markets as the government pursues fiscal consolidation and structural reforms.