Global credit rating agency Moody’s has upgraded Pakistan’s banking outlook from stable to positive, citing improved macroeconomic conditions and the resilience of the country’s financial sector.
In its latest report, Moody’s stated, “We have changed our outlook on Pakistan’s banking system to positive from stable to reflect the banks’ resilient financial performance as well as improving macroeconomic conditions from very weak levels a year ago.”
Economic Growth & Inflation Outlook
The agency projected Pakistan’s GDP growth to reach 3% in 2025, up from 2.5% in 2024, signaling a steady recovery from the negative growth of -0.2% in 2023.
Inflation is also expected to ease significantly, falling to 8% in 2025, compared to an average of 23% in 2024. Moody’s highlighted that lower inflation, along with expected policy rate cuts, will boost private-sector investment and economic activity.
Government Stability & Banking Sector Strength
Moody’s linked the positive banking outlook to the improving credit profile of the Government of Pakistan (Caa2 positive). Pakistani banks have significant exposure to the sovereign, with government securities comprising about 55% of total banking assets as of September 2024.
Despite this improvement, Moody’s warned that long-term debt sustainability remains a critical risk, given Pakistan’s weak fiscal position and ongoing external vulnerabilities.
IMF Program Supports Stability
The agency noted that Pakistan’s $7 billion IMF Extended Fund Facility, approved in September 2024, serves as a reliable source of external financing in the coming years. This program has bolstered the country’s liquidity and external position, contributing to an improved economic outlook.
Banking Sector Resilience
Moody’s expects banks to maintain adequate capital buffers, supported by subdued loan growth and strong cash generation. However, the report acknowledged that problem loans have risen to 8.4% of total loans as of September 2024, up from 7.6% the previous year. Despite this, overall loans remain at just 23% of total banking assets, mitigating risk.
Outlook for 2026
Looking ahead, Moody’s anticipates GDP growth of 4% in 2026, supported by a 10 percentage point reduction in interest rates since the start of the monetary easing cycle in June 2024.
With improving economic conditions and declining inflation, the positive outlook signals growing confidence in Pakistan’s financial system, provided the government continues to strengthen its fiscal and external stability.
