Pakistan absorbed Hormuz shock more effectively than 2022 oil crisis: Moody’s

ISLAMABAD: Pakistan has absorbed the economic shock of the Strait of Hormuz closure more effectively than it managed the 2022 oil price crisis, a Moody’s Ratings analyst has said, days after the agency upgraded the country’s sovereign credit rating.

Speaking to state media digital platform, Assistant Vice President at Moody’s, credited two years of macroeconomic stabilisation rather than luck.

“Pakistan has been more resilient, more able to absorb this shock from the Middle East conflict this time around, compared to say in 2022, where there was an oil price shock,” Grace Lim said.

READ MORE: Moody’s upgrades Pakistan’s rating to B3; maintains stable outlook

She credited that resilience to gains built up before the disruption began.

“Lower inflation, stable exchange rates, higher foreign exchange reserves, that gives them the buffer, that gives them better shock absorption capacity,” she said.

Lim said three factors drove Moody’s decision to upgrade Pakistan: improving governance, a stronger external position and better fiscal metrics.

“We upgraded Pakistan’s rating to reflect our expectation that the improvements in its governance will allow the government to sustain the recent strengthening of its external position and fiscal metrics,” she said.

She cautioned that Pakistan’s credit profile remains fragile.

“Our B3 rating still incorporates credit constraints, a structurally fragile external position. It still has a small export base, limited foreign direct investment,” Lim said, adding that debt affordability, the share of revenue consumed by interest payments, is improving but still weak.

Asked what would drive a further upgrade, Lim pointed to sustained implementation rather than any single indicator: reserves rebuilding beyond current expectations, continued improvement in access to official and commercial financing, and fiscal reforms that meaningfully improve debt affordability.

She said revenue reforms over the past two years, which raised revenue as a share of GDP, had already factored into the upgrade, but further progress would be needed to move the rating again.

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