Sign in Subscribe
  • E-PAPERS
    • Profit Magazine
    • Pakistan Today
  • HEADLINES
  • FEATURED
  • OPINION
    • COMMENT
    • EDITORIAL
  • TECH
  • WORLD
  • SATIRE
  • PERSONAL FINANCE
    • CAREERS
    • COMMODITIES
    • FOREX
    • INSURANCE
    • MARKETS
    • MUTUAL FUNDS
    • Private Equity
    • REAL ESTATE
    • SPENDING
    • TAXATION
Sign in
Welcome!Log into your account
Forgot your password?
Create an account
Sign up
Welcome!Register for an account
A password will be e-mailed to you.
Password recovery
Recover your password
Search
Sign inSubscribe
Profit Profit by Pakistan Today
Profit Profit
  • E-PAPERS
    • Profit Magazine
    • Pakistan Today
  • HEADLINES
    • HEADLINES

      Senate committee orders action against gas theft in Sindh, Balochistan

      HEADLINES

      Red-Alert: Forex reserves drop to lowest in 8 years, dollar touches…

      HEADLINES

      IMF not impressed by plan to contain circular debt

      HEADLINES

      Govt assures IMF team of hike in power tariff

      HEADLINES

      Inflation jumps to highest in nearly five decades 

  • FEATURED
    • FEATURED

      Funding vs execution – lessons for Pakistan

      FEATURED

      The looming antibiotic conundrum

      FEATURED

      The paradox of Pakistan’s bureaucracy

      FEATURED

      Dollar Cap, IMF, Ishaq Dar and ECAP; A week of showdowns…

      FEATURED

      Byram D Avari, the Parsis of Karachi, and the future of…

  • OPINION
    • AllCOMMENTEDITORIAL
      COMMENT

      Borrowing from the public

      EDITORIAL

      Between Dar and Atif, there is a field; I will meet…

      COMMENT

      Of Councils and Chambers

      COMMENT

      Interest Free Economy

  • TECH
    • FEATURED

      Future Fest 2023: ‘Tis the season for a comeback?

      TECH

      Fact check: Google is not suspending Play Store in Pakistan but…

      PARTNER CONTENT

      How 24SEVEN Apni Dukan is using tech to build communities and…

      TECH

      Digital freedom under threat again

      FEATURED

      Marriage apps are here. Which one would you choose?

  • WORLD
  • SATIRE
  • PERSONAL FINANCE
    • AllCAREERSCOMMODITIESFOREXINSURANCEMARKETSMUTUAL FUNDSPrivate EquityREAL ESTATESPENDINGTAXATION
      MARKETS

      Gold witnesses highest 16-month weekly close with 4.44pc gain

      FEATURED

      A guide on how to avoid financial fraud

      FEATURED

      So you want to have a credit card in Pakistan? Here’s…

      FEATURED

      Will the FBR be able to tame the retail sector?

Mini-budget supports exports, but increases fiscal consolidation challenges: Moody’s

It projected the deficit to widen to 6% of GDP in fiscal 2019 due to revenue growth possibly being below government forecasts, slower economic growth and the new revenue-based incentives.

By
Mohammad Farooq
-
January 31, 2019
0
435
Facebook
Twitter
Linkedin
WhatsApp
Email

    LAHORE: Moody’s in a report released on Thursday said the recently announced mini-budget supports exports but will increase fiscal consolidation challenges for the government.

    According to the rating agency, there is a greater risk of fiscal slippage and slower fiscal consolidation in the dearth of further revenue-raising measures.

    It noted that the mini-budget announced on 23rd January greatly concentrates on revenue-based measures to improve supply-side conditions for businesses and incentivize domestic reinvestment.

    Also, if successful, the measures will assist the country’s manufacturing sector, promoting exports and import substitution and help narrow the current account deficit.

    Due to the dearth of new spending cuts or revenue-raising measures, Moody’s said these measures will keep Pakistan’s budget deficits wider for longer, likely undermining the credibility of government efforts to achieve fiscal consolidation.

    And highlighting the previous mini-budget announced in September last year which focused on spending cuts, the second one is aimed at improving business conditions, including for manufacturers and exporters by reducing or removing existing taxes that erode profit margins or disincentivize reinvestment.

    Moody’s said specific measures announced include a decrease in import cotton duties on essential raw materials, the abolition of tax on retained earnings and incentives for the agriculture, which constitutes for roughly 20% of the country’s exports.

    The report said the country’s revenue base was a narrow 15.4% of GDP in FY18 which ended June 2018.

    It added the current government presented limited revenue-raising measures, especially taxes on large vehicles and high-end mobile phones.

    Consequently, the mini-budget put greater emphasis on improvement in tax administration and spending restraint for it to meet its deficit target of 5.1% of GDP.

    It projected the deficit to widen to 6% of GDP in fiscal 2019 due to revenue growth possibly being below government forecasts, slower economic growth and the new revenue-based incentives.

    The rating agency said the deficit would narrow to 5% by fiscal 2021, as the economy picks up.

    And it believed the PTI government remains devoted to fiscal consolidation, however, a wider for longer deficit could raise questions over the credibility of its fiscal policy.

    As per Moody’s, the mini-budget comes amid low export growth for the first half of FY19, despite the Pakistani rupee’s 25% decline against the US dollar since December 2017.

    Additionally, the government is trying to narrow the current account deficit by decreasing some of the tax distortions exporters face.

    Aside from weak exports, the rating agency noted Pakistan’s current account dynamics have been largely positive in recent months.

    On a year-on-year basis in dollar terms, remittances increased 10 in the first half (July-December) of FY19, while goods imports sharply contracted to about 3% YoY as non-fuel goods imports declined.

    It projected the current account deficit to narrow to 4.7% of GDP in FY19, 4.2% in FY20 compared to 6.1% in FY18, however, it will remain sizable and wider than it was in 2013-16 fueling the country’s external financing requirements.

    Source: Moody’s

    Pakistan has obtained $12 billion in financing from Saudi Arabia and the United Arab Emirates, amounting to $6 billion each respectively and divided equally between deposits and deferred oil payments, which is likely to cover its net financing needs for FY19, said Moody’s.

    But the rating agency cautioned a net financing gap beyond FY19 remains due to the still sizeable current account deficit.

    Moody’s said negotiations are ongoing with the International Monetary Fund (IMF) over a new programme which would provide a stable additional source of external funding besides technical support and assistance on macroeconomic rebalancing and structural reform policies.

    Moreover, Pakistan is also in discussions with other countries like China and Qatar, multilateral lenders such as the Asian Development Bank (ADB), the International Bank for Reconstruction and Development (IBRD) and the Islamic Development Bank over external funding support to bolster its external position, the rating agency concluded.

     

    • TAGS
    • current account deficit
    • External financing gap
    • Finance Minister Asad Umar
    • Financial Support package from UAE and Saudi Arabia
    • Fiscal Consolidatiion
    • fiscal deficit
    • Mini-Budget 2019
    • Revenue collection
    • saudi arabia
    Facebook
    Twitter
    Linkedin
    WhatsApp
    Email
      Mohammad Farooq
      The author is an Assistant News Editor at Profit by Pakistan Today. His works have been published in Dawn, Express Tribune, LiveMint India, Huffingtonpost India and The News on Sunday. He tweets @MohammadFarooq_

      RELATED ARTICLESMORE FROM AUTHOR

      HEADLINES

      Current account remains in surplus for 9MFY21

      ECONOMY

      Current account deficit shrinks 75pc to $50m in February

      HEADLINES

      Current account records $229m deficit in January: SBP

      Whatsapp Newsletter
      Email Newsletter News Tips
      Profit by Pakistan Today
      Publishing Editor: Babar Nizami - Joint Editor: Yousaf Nizami - Chief of Staff & Product Manager: Muhammad Faran Bukhari - Senior Editors: Abdullah Niazi I Sabina Qazi - Sub-Editors: Mariam Zermina | Basit Munawar - Editor Multimedia: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel - Reporters: Ariba Shahid I Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani l Shehzad Paracha l Aziz Buneri | Daniyal Ahmad | Ahtasam Ahmad | Asad Kamran - Regional Heads of Marketing: Mudassir Alam (Khi) | Zufiqar Butt (Lhe) | Malik Israr (Isb) -- Pakistan’s #1 business magazine - your go-to source for business, economic and financial news.
      Contact us: [email protected]
      • Privacy policy
      Copyright © 2023. Pakistan Today. All Rights Reserved.