Pakistan economy to grow by 5pc during next fiscal year: Moody’s


ISLAMABAD, June 6 (APP): Pakistan economy to grow by 5
percent during the next fiscal year, credit rating agency Moody’s
said in a report released on Tuesday.
The report described that the budget is based on a real GDP
growth target of 6.0% for FY2018, after 5.3% in FY2017 which was
revised down from 5.7% driven by a significant increase in
development spending related to the China Pakistan Economic
Corridor (CPEC) project, primarily for energy and transportation
infrastructure, private news channel reported.
“We expect real GDP growth to be closer to 5.0% in both
FY2017 and FY2018, due primarily to CPEC project implementation
risks and capacity constraints on government development
spending,” says Moody’s Investors Service.
Credit-positive commitment to moderate budget deficit
maintained On 26 May, Pakistan (B3 stable) unveiled its federal
budget for the fiscal year ending June 2018 (FY2018), which
targets higher development spending-led growth and a broadly
stable budget deficit.
In his budget speech, Finance Minister Ishaq Dar announced a
4.1% of GDP fiscal deficit target for FY2018, similar to the 4.2%
provisional estimate for FY2017 and much lower than a peak of more
than 8.1% of GDP in FY2013.
Moody’s further highlighted that the re-asserted commitment
to moderate deficits is credit positive for Pakistan whose debt
burden, at nearly 67% of GDP in 2016, and large gross borrowing
requirements, at nearly 32% of GDP, are constraints on the
sovereign rating.
Implementation of the budget measures would support
Pakistan’s credit profile by helping to relieve supply-side
infrastructure bottlenecks, which constrain the country’s economic
However, budget execution risk is high, given relatively
ambitious GDP growth and revenue assumptions, as well as limited
institutional capacity to spend development funds.
Besides somewhat lower GDP growth than assumed in the
budget, Moody’s expect the fiscal deficit to be wider than the
government forecasts, at about 4.7% of GDP in FY2017 and 5.0% of
GDP in FY2018.
On the revenue side, the government projects an approximate
11% increase in FY2018 over FY2017 (a 3.0% increase over FY2017
budgeted revenues).
“Given our forecast of about 10% nominal GDP growth in
FY2018, this implies a tax buoyancy of around 1.4, which would
indicate a high degree of tax revenue responsiveness to movements
in GDP,” the report stated.
It further said that the government projects about a 2%
increase in current expenditure and a 40% increase in development
spending relative to downwardly revised estimates for FY2017.
In years past, limited capacity to spend budgeted
development funds restricted such expenditure, particularly at the
provincial level.
“We believe it will be difficult for the government to fully
realize its ambitious development spending targets this year,
absent material institutional strengthening,” the report added.