Mini-budget measures not enough to curb fiscal deficit: Moody’s

KARACHI: The country’s fiscal deficit is likely to reach six per cent of GDP during this fiscal year as the government has failed to introduce measures to curb expenditure and increase revenues in the supplementary finance bill announced last week, noted Moody’s.

The mini-budget will foster exports and support the country’s manufacturing sector but ignored spending cuts or measures to increase revenues eroding government’s ability to meet the deficit target of 5.1pc, added the note.

The financial services company expects the fiscal deficit to widen to 6pc as the revenue is expected to remain below earlier projections given placid economic growth and new incentives to boost revenues before narrowing to 5pc of the GDP by FY21.

According to State Bank of Pakistan’s quarterly report issued, the fiscal deficit during 1QFY19 year increased to 1.4pc following marked slowdown in revenue growth as overall expenditure increases remain unchanged against same period last year despite significant cuts in federal and provincial development spending.

The report noted that on the expenditure front, major challenge was the steep rise in debt servicing payments.

Moody’s commented that barring exports, the country’s external sector has shown marked improvement during the last few months visible in 10pc increase in remittances and 3pc slowdown in imports.

Pakistan’s current account deficit dropped 4.4pc year-on-year during 1HFY19 to $8bn driven by a sharp decline in import of goods and services. Moreover, non-oil imports saw a contraction of 4.4pc during the period under review as against an increase of 19.1pc last year.

The government has received $12bn — $6bn each from the Saudi Arabia and the UAE — which is likely to provide for its net financing needs during 2019. However, the government is also negotiating a programme with the International Monetary Fund in addition to discussions with other multilateral lenders including the Asian Development Bank, Inter­national Bank for Recons­truction and Development and the Islamic Development Bank to improve its external position.