Three years after standing at the edge of default, Pakistan was upgraded from Caa1 to B3 with a stable outlook on 24 August — and it arrives with the receipts: a Eurobond in April, a debut panda bond in May, and interest payments down from 49% of revenue to 35%.
Moody’s raised Pakistan’s sovereign rating from Caa1 to B3 on 24 August 2026, holding the outlook at stable and citing improvements in governance. The supporting numbers describe an external position rebuilt rather than merely stabilised. Foreign exchange reserves stood at roughly $17 billion at the end of July 2026, up from $14 billion a year earlier, and the agency projects $19–20 billion by the close of FY2027 and $20–21 billion by the end of FY2028. The External Vulnerability Indicator — the ratio that matters most for a sovereign with a history of balance-of-payments crises — improved to around 145% in 2026 from 230% in 2025. Debt affordability moved in the same direction: interest payments consumed 35% of government revenue in FY2026, against 49% the year before.
What separates this upgrade from a forecast is that Pakistan has already tested the market twice. A $750 million three-year Eurobond priced in April 2026, followed in May by a debut CNY 1.75 billion panda bond — roughly $250 million — giving Islamabad demonstrated access in two currencies for the first time since the 2022–23 near-default. Moody’s was careful not to oversell it, warning that the credit profile “remained vulnerable” on account of a “structurally fragile external position, weak debt affordability, a still relatively narrow revenue base.” The projections are explicitly conditional on continued adherence to the IMF programme.
Why it matters
B3 is not a good rating; it is a threshold. A large tranche of institutional emerging-market debt mandates cannot hold paper rated Caa, and crossing into single-B territory changes who is legally permitted to buy Pakistani risk rather than merely who wants to. Combined with an executed Eurobond and a panda bond, that is the practical definition of exiting distress: not a narrative of recovery but two priced transactions and a rating that lets the buyers show up. The narrow revenue base remains the unfinished work, and it is what will decide whether B3 is a floor or a ceiling.
Sources: Moody’s Ratings · Dawn · Business Recorder · The Express Tribune