Pakistan faces vulnerability to external funding conditions and policy missteps, warns Fitch.
Published on: June 19, 2024.
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Pakistan Faces External Funding Challenges and Policy Missteps, says Fitch Ratings
Pakistan is projected to require $20 billion per year in the fiscal year 2024-2025, leading global ratings agency Fitch has reported. Fitch warned that Pakistan’s funding needs exceed its reserves, including maturing bilateral debt that will likely need to be rolled over. The country’s gross reserves, including gold, currently stand at $15.1 billion, equivalent to over two months of external payments, up from $9.6 billion at the end of the fiscal year 2023.
The announcement comes shortly after Pakistan presented its annual budget of Rs18.87 trillion in Parliament, amid opposition noises. Finance Minister Muhammad Aurangzeb, who presented the budget, informed the National Assembly that Pakistan was seeking an Extended Fund Facility from the International Monetary Fund (IMF). Prime Minister Shehbaz stated in a live address to the nation before Eid that he hoped this would be Pakistan’s last loan program, allowing them to surpass neighboring countries like India.
The government has set an ambitious tax revenue target of Rs13 trillion for the new fiscal year, beginning on July 1, representing an almost 40% increase from the current year. Fitch Ratings views Pakistan’s ‘CCC’ rating, affirmed in December 2023, as reflecting high external funding risks amidst significant medium-term financing requirements. While the budget aims to reinforce the case for a new IMF bailout deal, Fitch remains uncertain about whether the fiscal targets will be met. However, even assuming only partial implementation of the budget, Fitch predicts a reduction in the fiscal deficit, which should alleviate external pressures, albeit at the cost of growth, according to the agency’s report.
The key objectives for the upcoming fiscal year include reducing the public debt-to-GDP ratio to sustainable levels and prioritizing improvements in Pakistan’s balance of payments position, as shown in the government’s budget document.
Source: [Fitch website](https://english.aaj.tv)
