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International rating agency Moody’s has improved Pakistan’s banking outlook from stable to positive, indicating improved macroeconomic landscape.
In its statement, Moody’s attributed the revised outlook to the sector’s strong financial performance and a more favorable macroeconomic environment compared to the previous year.
The agency noted that this positive shift also reflects the upgraded outlook on the Government of Pakistan (Caa2 positive), as Pakistani banks hold significant sovereign exposure through their large investments in government securities, which constitute nearly half of total banking assets.
However, Moody’s cautioned that Pakistan’s fiscal challenges persist, with concerns over long-term debt sustainability, a fragile fiscal position, and high external vulnerability risks.
Looking ahead, Moody’s projected the Pakistani economy to grow by 3% in 2025, up from 2.5% in 2024 and a contraction of 0.2% in 2023.
Inflation is also anticipated to decrease significantly, with an estimated 8% in 2025 compared to an average of 23% in 2024.
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The agency highlighted a slowdown in the formation of problem loans due to lower borrowing costs and reduced inflation.
Nevertheless, it warned of narrowing net interest margins as interest rate cuts take effect. Moody’s emphasized that the improved banking outlook is primarily driven by a stronger operating environment.
