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Moody’s said on Wednesday it had raised Pakistan’s credit rating by one notch to ‘Caa1’ from ‘Caa2’ due to an improving external financial position and it assigned the country a “stable” outlook.

The announcement came within hours of Pakistan’s Finance Minister Mohammed Aurangzeb saying there was more room for the central bank to cut the country’s key policy rate from 11 percent on the back of positive economic indicators.

“The credit rating’s improvement is a sign that economic policies are heading toward the right direction,” Prime Minister Shehbaz Sharif said in a statement.

Pakistan’s international bonds rose as much as 1 cent to between 90 and 100 cents on the dollar following the ratings upgrade. It lifted most of them to their highest since early 2022 when fears of a full-blown debt crisis sent them plunging to as little as 30 cents.

Moody’s decision to raise the rating by one notch after Fitch and S&P did the same will help Pakistan’s capability to raise external debt. Pakistan says its economy is on a recovery path after a $7 billion IMF bailout helped to stabilize it.

“We changed the outlook for the Government of Pakistan to stable from positive,” Moody’s said in a statement.

“The upgrade to Caa1 reflects Pakistan’s improving external position, supported by its progress in reform implementation under the IMF Extended Fund Facility (EFF) program,” it said.

Pakistan’s debt affordability has improved, but remains one of the weakest among rated sovereigns, Moody’s said, adding that the Caa1 rating also reflected the country’s weak governance and high degree of political uncertainty.

Aurangzeb told a gathering of businessmen in Islamabad ahead of the Moody’s announcement that he was expecting an improvement in Pakistan’s credit rating by other agencies after Fitch and S&P.

“We are hopeful of progress in terms of the policy rate going south,” he added.

Aurangzeb said it was his personal view that there was more room for a rate cut toward the end of the year, adding that it was for the central bank to make the final call on the issue. The next policy rate announcement is due on September 15. The central bank left its key interest rate unchanged at 11 percent on July 30, going against analyst expectations. In a Reuters poll they had forecast a reduction of 50 to 100 basis points. The bank said the inflation outlook had deteriorated due to rising energy prices.

Inflation accelerated to 4.1 percent year-on-year in July. 

KARACHI: Pakistan’s largest flag manufacturer, VIP Flags, is expecting around 50 percent growth in sales this year as the public marks the country’s 78th Independence Day with unusual zeal, fueled by celebrations of victory in the May 2025 conflict with India.

The two nuclear-armed neighbors, which have fought three major wars since 1947, engaged in their deadliest fighting in decades this May. The fighting ended on May 10 after US mediation, with Prime Minister Shehbaz Sharif’s government declaring victory and saying it had downed at least six Indian fighter jets.

Officials have since linked the conflict’s outcome to the heightened national fervor surrounding August 14 this year, reflected in booming flag markets and sales of other Independence Day paraphernalia.

“Our business, all the businesses have grown 50 percent,” said VIP Flags CEO Nisar Ahmed Sheikh, adding that much of his stock had been sold to marchers rallying in support of Pakistan’s armed forces during the war with India.

VIP Flags manufactures flags for domestic customers, the armed forces, and international buyers in �������� and the UAE, and holds Guinness World Records for the largest flags made in 2004 and 2008.

Sheikh said sales this year would likely run into millions of units.

“Obviously when people were filled with passion [after the war with India] and started hoisting flags, the flags business saw an uptick and increased compared to last year,” he told Arab News. 

“It is still growing and people are putting flags on their cars, bicycles and motorcycles.”

Sheikh said the surge in sales extended well beyond flags, with market vendors incorporating Independence Day themes into a wide range of products — from shirts, mufflers and headbands to shawls, dresses and children’s clothing — creating a vibrant festive atmosphere.

“People must be spending billions of rupees on this (celebrations) and this spending boosts the economy,” the CEO said. 

In Pakistan’s commercial hub of Karachi ahead of Aug. 14, large and small flags adorned vehicles, houses and office buildings, alongside buntings and night-time illuminations. Meanwhile, federal and provincial governments are holding daily events, with top officials like the prime minister and army chief expected to attend ceremonies in Islamabad on Aug. 13 and 14.

“The last time we saw such a show of national zeal on Independence Day was in Zia’s time,” Sheikh said, referring to former military ruler Zia-ul-Haq. “We see people decorating their houses, vehicles and vicinities with flags and buntings and badges.”

Abdul Wahab, a finisher at one of Sheikh’s factories, said he expected at least a 25 percent income increase this season. 

“We are seeing a rush in the market because of this war we recently fought with India,” said the 26-year-old, who plans to work overtime to meet demand.

For lawyer Bad-e-Saba, the occasion was a chance to pass on a message to the next generation.

“The war we recently won against Hindustan is a matter of great pride for us. We want to convey it to our children so they could know where we are standing against our enemy,” she said.

“We want to tell our enemies that we can take good care of our country and our next generation will do it better.”