Global rating agency Moody’s said on Friday that the country’s weak access to credit poses a high risk to debt sustainability, saying the government spends more than half of its revenue on interest payments.
Comment on the new funding bill for fiscal year (FY) 2025: “The budget is expected to increase by about 18pc in fiscal year 2025 compared to a year ago.”
“The government spends more than half of its revenue on interest payments, indicating a high risk of credit sustainability,” he said, adding that “about 55 percent of revenue in fiscal year 2025 ($9.8 trillion) is earmarked for government debt interest payments.
The rating agency said the cost overruns indicated “lack of cost recovery measures and very high interest payments in Pakistan”.
Subsidies rose 27 percent to $1.1 trillion, indicating progress in energy sector reform “mainly through increased subsidies to the energy sector.”
Overall, the rating agency said the budget shows “accelerated fiscal consolidation” but reducing sustainability risks will be key to supporting reforms.
Furthermore, the agency shared the same sentiments as the experts, because the financial legislation “will support Pakistan’s talks with HPG for the new Enhanced Fund (EFF) program and will be critical for the government to unlock funds from HPG and meet its external financing needs.” other bilateral and multilateral partners”.
However, he warned that the government’s ability to “continue to implement reforms” will be important to meet the fiscal targets needed to ease liquidity risks and unlock external financing.
A resurgence of social tension on the back of high taxes and potentially rising costs of living due to future energy price adjustments can weigh on the implementation of reforms.
“Furthermore, there is a risk that the coalition government will not have a strong enough electoral mandate to consistently implement difficult reforms,” he said.
In the budget, the government announced a cumulative budget deficit of 5.9 percent of GDP for fiscal 2025, up from last year’s estimate of 7.4 percent – with a primary balance of more than 2 percent of GDP for next year, the report said.
In addition, the government projected real GDP growth at 3.6 percent and inflation at 12 percent. He also sought to boost federal government revenue by $17.8 trillion — 46 percent over the previous year — through “a combination of new taxes and strong nominal growth.”
According to the explanation, this shows that “the government is trying to achieve faster fiscal consolidation by increasing revenues through austerity measures.”
Global Outlook Report
The World Bank stated in its Global Economic Prospects report that Pakistan’s growth is expected to increase by 2.3 percent by 2025, where “industrial activity and confidence are expected to increase due to the removal of import restrictions and lower inflation. restrained by strict macroeconomic policies,” he said.
The report states that growth is expected based on “sustainable macroeconomic management, progress in structural reforms, multilateral flows that will improve investor confidence, and bilateral engagement.”
As for inflation, the report noted that inflation “has moderated but remained elevated over the past year due to high base effects coupled with the stabilization of the exchange rate”.
On the positive side, he said, “foreign exchange reserves have increased in several countries, including Pakistan and Sri Lanka, reflecting an easing of currency pressure and gains in official flows.”
