International rating agency Moody’s on Monday revised Pakistan’s banking sector outlook to stable from positive, saying that the South Asian country’s economy has made gradual recovery.
“We have changed our outlook on Pakistan’s banking system to stable from positive,” said the global rating agency on Monday.
Moody’s said the operating environment is continuing to recover, albeit at a slow pace, supported by a gradually improving economic and fiscal outlook and a strengthening external position.
However, the agency believes that banks’ financial performance is expected to remain stable over the next 12–18 months as asset quality and profitability pressures persist.
The sector outlook remains closely linked to that of the Government of Pakistan (Caa1, stable), reflecting banks’ significant exposure to government securities, which make up about half of total banking assets. Moody’s added that Pakistan’s long-term debt sustainability remains uncertain due to a weak fiscal position and elevated liquidity and external vulnerability risks.
Moody’s projected real GDP growth of around 3.5% in 2026, up from 3.1% in 2025, driven by ongoing reforms that are boosting confidence and gradually strengthening economic activity.
Headline inflation declined sharply to 4.5% in 2025 from 23% in 2024. Moody’s expects inflation to rise to about 7.5% in 2026, partly due to base effects.
