Pakistan has demonstrated greater resilience in dealing with the economic repercussions of the Strait of Hormuz closure compared with the severe oil price crisis witnessed in 2022, according to Moody’s analyst Grace Lim.
Lim noted that Pakistan’s economy is now in a comparatively stronger position to absorb external shocks, largely because of two years of macroeconomic stabilisation.
Lower inflation, a more stable exchange rate and an improvement in foreign exchange reserves have provided the country with greater economic buffers than it had during the 2022 oil price surge.
The improvement comes after a period of significant economic pressure, during which Pakistan faced rising import costs, currency depreciation, high inflation and growing pressure on its external financing needs.
The recent stabilisation of key economic indicators has helped reduce some of the vulnerabilities that previously amplified the impact of global commodity and energy shocks.
Moody’s has also recently upgraded Pakistan’s sovereign credit rating to B3, reflecting what it described as progress in governance, a stronger external position and improvements in fiscal indicators.
The upgrade signals increased confidence in the country’s ability to manage its financial obligations and withstand external pressures.
The Strait of Hormuz remains particularly important for Pakistan because disruptions in the region can affect global oil supplies and international energy prices.
Any prolonged disruption could increase Pakistan’s import bill and place additional pressure on foreign exchange reserves, inflation and the current account.
Despite the recent improvements, Moody’s continues to view Pakistan’s overall credit profile as fragile. The country remains exposed to external economic shocks because of its narrow export base, limited foreign investment and weak debt affordability.
These structural weaknesses could become more challenging if global energy prices remain elevated or external financing conditions deteriorate.
Pakistan’s improved resilience therefore represents progress, but it does not eliminate the underlying risks facing the economy.
Sustained reforms, stronger exports, greater foreign investment and improved fiscal management will remain crucial for strengthening the country’s economic position and reducing its vulnerability to future international crises.
