ISLAMABAD: 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 development.
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.
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