Lenders help to reduce Pakistan's financial risk, Moody's

Lenders help to reduce Pakistan's financial risk, Moody's

ISLAMABAD: Financial assistance from the International Monetary Fund (IMF) and other institutions has reduced the financial threat posed to Pakistan by the economic shock of the coronavirus, but the fiscal deficit could touch double digits.

Moody's Investors Service says "significant financial support from formal sector lenders has reduced Pakistan's financial risks."

Moody's added that the fiscal stimulus announced by the government could increase the country's budget deficit by 9.5 to 10 percent of gross domestic product (GDP).

It may be recalled that the IMF had approved the payment of 1 billion 40 crore Dollars to Pakistan under the Rapid Financing Instrument (RFI).

In addition, 58 million was provided by the Asian Development Bank and the International Development Association to support Pakistan's efforts to control the coronavirus.

In addition, G20 leaders also offered mutual debt relief to Pakistan.

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The US rating agency said the economic impact on Corona and the government's 12 trillion packages were likely to increase Pakistan's financial needs.

"Similarly, we expect the government deficit to reach 9.5 percent of GDP in 2020 instead of 8.9 percent in FY2019, despite an increase in revenue in the first half of the current financial year," Moody's said. The deficit was reduced.

The rating agency added that "government revenue increased by about 40% over the previous year."

The agency estimates that the government's general debt will increase from 83% in the fiscal year 2019 to 81% in June 2020 and gradually decrease in subsequent years.

According to Moody's, the government's commitment to fiscal consolidation under the IMF program is expected to reduce the fiscal deficit by 2021 but will remain at 8 to 8.5 percent of GDP.

Recent financial support from multilateral development banks has increased its funding for Pakistan, including the IF's Extended Fund Facility and the World Bank's Revitalizing Innovation, Strengthening Education Project.

"In FY20, we expect additional funding to meet the government's external financing needs," Moody's added.

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