Global credit rating agency Moody’s has revised Pakistan’s banking sector outlook from stable to positive, signaling an improved macroeconomic environment.
In its latest assessment, Moody’s attributed the upgrade to the sector’s strong financial performance and a more favorable economic landscape compared to the previous year.
The agency emphasized that this shift also aligns with the improved outlook on Pakistan’s sovereign rating (Caa2 positive) since banks hold substantial investments in government securities, accounting for nearly half of total banking assets.
Despite this positive momentum, Moody’s cautioned that Pakistan’s fiscal challenges remain, citing concerns over long-term debt sustainability, a fragile fiscal position, and external vulnerability risks.
Looking ahead, Pakistan’s economy is projected to grow by 3% in 2025, up from 2.5% in 2024, following a contraction of 0.2% in 2023.
Inflation is also expected to decline sharply, with an estimated 8% in 2025, compared to an average of 23% in 2024.
The report further noted a slowdown in problem loan formation, attributed to lower borrowing costs and reduced inflationary pressures.
However, Moody’s warned that net interest margins may tighten as interest rate cuts take effect.
Overall, the agency highlighted that the improved banking sector outlook is largely driven by a strengthening operating environment, positioning Pakistani banks for greater financial stability in the coming years.
