Pakistan's new government led by Prime Minster Imran Khan has inherited large twin deficits. The new "mini budget" announced by Finance Minister Asad Umar "will support Pakistan’s manufacturing sector, fostering exports and import substitution, and help narrow the current-account deficit", says a January 31, 2019 report by Moody's investor service. The report adds that the tax incentives given to manufacturing and exports-oriented industries "will keep Pakistan’s budget deficits wider for longer, potentially eroding the credibility of government efforts to achieve fiscal consolidation."
Pakistan Mini Budget Announced January 23, 2019. Source: Shajar Capital
Here's an excerpt of Moody's report on the immediate downsides of the measures announced by Umar on January 23, 2019: “We expect the deficit to widen to 6% of GDP in fiscal 2019 because revenue growth is likely to be below government projections, given slower economic growth and the new revenue-based incentives, before gradually narrowing to 5% of GDP by fiscal 2021 as the economy picks up. While we believe the government remains committed to fiscal consolidation, a wider for longer deficit could raise questions over the credibility of its fiscal policy."
Remittances from Pakistan diaspora rose by 10% year on year to $10.71 billion in the first half of fiscal 2019, while goods imports slowed sharply to around 3% year on year as non-energy imports contracted.
Moody's expects "the current-account deficit to narrow to 4.7% of GDP in fiscal 2019 and to 4.2% in fiscal 2020 from 6.1% in fiscal 2018, it will remain sizable and wider than in 2013-16, driving Pakistan’s external financing needs. The government has secured $12 billion in financing from Saudi Arabia and the United Arab Emirates – in each case amounting to $6 billion and divided equally between deposits and deferred oil payments – which is likely to largely cover the country’s net financing needs for fiscal 2019".
Beyond fiscal 2019, however, a net financing gap remains large because of the still sizable current-account deficit. Pakistan remains in negotiations with the International Monetary Fund over a new program that would provide a stable additional source of external financing, as well as technical support and assistance on macroeconomic rebalancing and structural reform policies.
https://www.southasiainvestor.com/2019/01/moodys-says-pakistans-new-mini-budget.html
Pakistan Mini Budget Announced January 23, 2019. Source: Shajar Capital
Here's an excerpt of Moody's report on the immediate downsides of the measures announced by Umar on January 23, 2019: “We expect the deficit to widen to 6% of GDP in fiscal 2019 because revenue growth is likely to be below government projections, given slower economic growth and the new revenue-based incentives, before gradually narrowing to 5% of GDP by fiscal 2021 as the economy picks up. While we believe the government remains committed to fiscal consolidation, a wider for longer deficit could raise questions over the credibility of its fiscal policy."
Remittances from Pakistan diaspora rose by 10% year on year to $10.71 billion in the first half of fiscal 2019, while goods imports slowed sharply to around 3% year on year as non-energy imports contracted.
Moody's expects "the current-account deficit to narrow to 4.7% of GDP in fiscal 2019 and to 4.2% in fiscal 2020 from 6.1% in fiscal 2018, it will remain sizable and wider than in 2013-16, driving Pakistan’s external financing needs. The government has secured $12 billion in financing from Saudi Arabia and the United Arab Emirates – in each case amounting to $6 billion and divided equally between deposits and deferred oil payments – which is likely to largely cover the country’s net financing needs for fiscal 2019".
Beyond fiscal 2019, however, a net financing gap remains large because of the still sizable current-account deficit. Pakistan remains in negotiations with the International Monetary Fund over a new program that would provide a stable additional source of external financing, as well as technical support and assistance on macroeconomic rebalancing and structural reform policies.
https://www.southasiainvestor.com/2019/01/moodys-says-pakistans-new-mini-budget.html
