Global rating agency Moody’s has upgraded Pakistan’s banking outlook to positive from stable, citing resilient financial performance and improving macroeconomic conditions. This shift marks growing confidence in the country’s financial sector after a period of economic uncertainty.
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Moody’s highlighted that banks have sustained strong profits despite limited private-sector lending, benefiting from high government borrowing rates. With the government’s aggressive borrowing at historically high interest rates, banks have remained profitable even amid broader economic challenges. Although Pakistan’s economic outlook was downgraded in 2023, recent policy measures and engagements by Finance Minister Mohammad Aurangzeb aim to restore investor confidence and attract foreign capital.
The agency forecasts 3% GDP growth in FY25, up from 2.5% in FY24, with inflation expected to decline to 8% in 2025 from 23% in 2024. The State Bank of Pakistan projects GDP growth between 2.5% and 3.5%, supported by improved economic indicators and monetary policy adjustments. Moody’s also projects GDP growth to reach 4% in 2026 as the economy stabilizes further.
Pakistani banks hold about 55% of assets in government securities, strengthening their link to sovereign performance. While non-performing loans have risen to 8.4%, overall loans account for just 23% of total banking assets, limiting potential risks. Moody’s expects banks to maintain strong capital buffers, supported by steady cash generation and cautious loan growth.
The upgraded outlook signals growing investor confidence in Pakistan’s financial sector and broader economic stability. As inflation eases and economic conditions improve, banks are expected to play a more active role in supporting business expansion and economic growth.
