Pakistan better positioned to absorb Hormuz shock than 2022 oil crisis: Moody’s

Pakistan has demonstrated greater resilience in absorbing the economic impact of the Strait of Hormuz disruption compared with the oil price shock of 2022, supported by improved macroeconomic fundamentals, according to Moody’s Ratings.

 

A Moody’s analyst said the country’s ability to withstand the latest Middle East-related shock was the result of macroeconomic stabilisation achieved over the past two years rather than favourable circumstances.

 

Pakistan entered the crisis with lower inflation, a relatively stable exchange rate and stronger foreign exchange reserves, providing the economy with greater capacity to absorb external shocks.

 

The rating agency recently upgraded Pakistan’s sovereign credit rating, citing improvements in governance, the country’s external position and fiscal indicators.

 

However, Moody’s cautioned that Pakistan’s credit profile remains constrained by structural weaknesses, including a fragile external position, a narrow export base and limited foreign direct investment. While debt affordability has improved, the burden of interest payments on government revenues remains significant.

 

Looking ahead, Moody’s said further upgrades would depend on sustained reforms and continued strengthening of the economy. Key factors include a stronger buildup in foreign exchange reserves, improved access to official and commercial financing, and fiscal reforms that significantly enhance debt affordability.

 

The agency noted that recent revenue reforms, which increased revenue collection as a share of GDP, contributed to the latest rating upgrade. However, continued progress in implementing structural reforms will be necessary for Pakistan to secure further improvements in its credit rating.