Moody\'s upgrades Pakistan’s banking sector outlook from ‘negative’ to ‘stable’

Moody's Investors Service has upgraded the outlook of Pakistan's banking sector from 'negative' to 'stable', citing easing macro challenges and fiscal pressures. In its report, the agency highlighted the solid profitability and stable funding of banks, which provided a buffer against the country's macroeconomic challenges and political uncertainties. The report forecasts a modest growth of 2% for the Pakistani economy in 2024, with a projected decrease in inflation from 29% to around 23% compared to the previous year. However, it cautioned that high-interest rates and inflation would continue to hinder private-sector spending and investment. Pakistani banks, according to Moody's, are primarily financing the government's fiscal deficits, limiting their capacity to lend to the real economy. While initiatives to promote financial inclusion and support key sectors may partially boost credit demand, the overall lending landscape remains constrained.