Moody’s Ratings, a global credit rating agency, stated on Friday that Pakistan’s newly announced budget for the fiscal year 2024-25 would likely support ongoing talks with the International Monetary Fund (IMF) for a new Extended Fund Facility (EFF).
However, it cautioned that rising social tensions due to high inflation could impact the government’s ability to implement reforms.
“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,” Moody’s said.
Pakistan is negotiating with the IMF for a larger, longer-term program to achieve macroeconomic stability.
Moody’s emphasised that while the budget supports these talks, successful reform implementation is crucial to meeting fiscal targets and securing external financing.
The government plans to finalise a staff-level agreement with the IMF by early July. The budget outlines fiscal consolidation through tax increases and stronger nominal growth.
Moody’s noted that sustaining these reforms is essential for Pakistan to meet budget targets and ease liquidity risks.
Moody’s highlighted that the government aims to increase federal revenue by 46% to Rs17.8 trillion, driven by a 40% rise in tax revenue from new taxes and stronger nominal growth. However, overall federal expenditure is also set to rise by 25% to Rs18.9 trillion.
The budget allocates Rs1.4 trillion in subsidies, a 27% increase, mainly for the power sector, reflecting limited progress in energy reforms. Public sector pensions and salaries are also increased. Debt servicing payments are projected to rise by 18%, with 55% of fiscal 2025 revenue earmarked for interest payments on government debt.
Moody’s warned that high debt payments will constrain the government’s capacity to service debt while meeting essential social spending and infrastructure needs, highlighting significant debt sustainability risks.
