Moody’s Ratings, a global credit rating agency, on Friday said Pakistan government’s newly-announced budget for fiscal year 2024-25 would “likely support” Islamabad’s ongoing talks with the International Monetary Fund (IMF) for a new Extended Fund Facility (EFF).
However, it warned that a resurgence of social tensions in the wake of high inflation could weigh on the government’s reform implementation.
On Wednesday, Finance Minister Muhammad Aurangzeb announced Pakistan’s federal budget 2024-25, targeting a modest 3.6% growth for the coming fiscal year, as Islamabad looked to appease the Washington-based lender and balance its burgeoning books with higher taxation.
Pakistan is currently engaged in talks with the IMF for a longer, larger programme as it seeks permanent macroeconomic stability.
Aurangzeb, during his budget speech and the post-budget press briefing, said early July is by when the staff-level agreement could be finalised.
Moody’s said the budget for FY25 outlines a quickening of fiscal consolidation to be achieved through increases in taxes and stronger projected nominal growth.
“The announced budget will likely support Pakistan’s ongoing negotiations with the IMF for a new EFF that will be crucial for the government to unlock financing from IMF and other bilateral and multilateral partners to meet its external financing needs,” said the global rating agency.
“However, it will be the government’s ability to sustain reform implementation that will be key to allowing Pakistan to meet its budget targets and continually unlock external financing to meet its needs, leading to a durable easing of liquidity risks.”
Moody’s warned that a resurgence of social tensions on the back of the high cost of living (which may increase because of higher taxes and future adjustments to energy tariffs) could weigh on reform implementation.
“Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain,” it said.
The government on Wednesday announced a consolidated (federal and provincial) budget deficit of 5.9% of GDP for fiscal 2025, narrowing from an estimated 7.4% for fiscal 2024. The primary balance is set at a surplus of 2.0% of GDP for fiscal 2025, from around 0.4% for fiscal 2024.
The government projects real GDP growth at 3.6% for fiscal 2025 and headline inflation at 12%.
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