Moody's comments on Pakistan's fiscal budget impact IMF talks

Pakistan's fiscal year 2024-25 budget has garnered attention from Moody's Ratings, a leading global credit rating agency. Moody's recent comments shed light on the budget's potential impact on discussions with the International Monetary Fund (IMF) for a new Extended Fund Facility (EFF).

The budget plays a crucial role in supporting negotiations with the IMF, essential for securing financial assistance to address Pakistan's external financing needs. However, Moody's also expressed concerns about rising social tensions due to high inflation, which could impede the government's reform efforts.

Currently engaged in talks with the IMF for a comprehensive program aimed at achieving macroeconomic stability, Pakistan faces the challenge of implementing sustained reform measures outlined in the budget to meet financial objectives and mitigate liquidity risks.

The budget focuses on fiscal consolidation through tax increases and anticipates robust nominal growth. It aims to boost federal revenue significantly, primarily through increased tax collection and economic growth. However, the rise in federal expenditure, particularly in subsidies like the power sector, raises questions about progress in energy sector reforms.

Moreover, provisions for higher public sector pensions, salaries, and an 18% increase in debt servicing payments highlight the budget's allocation challenges. Moody's caution against a substantial portion of fiscal revenue earmarked for debt interest payments, posing a balancing act for the government between debt obligations and essential social and infrastructure spending.

Moody's emphasizes the critical importance for Pakistan to manage its debt burden effectively while prioritizing key social expenditures and infrastructure development to mitigate significant debt sustainability risks.