ISLAMABAD: The financial support from the International Monetary Fund (IMF) and other multilaterals has lowered Pakistan’s financing risks from the coronavirus-related economic shock even though its fiscal deficit may touch double digits.

“The substantial financial support from official-sector creditors reduces Pakistan’s financing risks,” said the Moody’s investors service on Thursday, adding that the fiscal stimulus announced by the government could widen the country’s budget deficit to 9.5-10 per cent of GDP.

The IMF approved disbursement of $1.4 billion (0.5pc of GDP) to Pakistan under its Rapid Financing Instrument (RFI) and it was supplemented by $588 million (0.2pc of GDP) assistance committed by the Asian Development Bank and the International Development Association to support Pakistan’s response to the coronavirus outbreak. Additionally, G20 creditors have offered bilateral debt relief to Pakistan.

“The substantial financial support from official-sector creditors reduces Pakistan’s financing risks,” said the New York-based rating agency. It expected Pakistan’s financing needs to rise because of coronavirus-related economic effects and the government’s Rs1.2 trillion ($7bn, 2.7pc of GDP) stimulus package.

Consequently, we expect the stimulus to widen the government deficit to 9.5pc-10pc of GDP in fiscal 2020 (ending June 2020) from 8.9pc in fiscal 2019, despite strong revenue growth narrowing the deficit in the first half of fiscal 2020. Government revenue in the first half of this year rose almost 40pc from a year earlier, with tax revenue up by 18pc and non-tax revenue more than doubling in part because of higher profits from the central bank. Nevertheless, tax revenue is likely to contract in the second half compared with the year-ago period, although higher-than-budgeted central bank profits, lower-than-budgeted interest payments and fiscal savings from lower oil prices will mitigate the effect of the contraction on the deficit,” Moody’s said.

The rating agency estimated the general government debt to rise to around 87pc of GDP by June 2020 from around 83pc in June 2019 and gradually decline in subsequent years. In fiscal 2021, it expected the deficit to narrow given the government’s commitment to fiscal consolidation under its IMF programme, but remain wide at 8-8.5pc of GDP.

The multilateral development banks’ (MDBs) latest financial assistance augments their current funding to Pakistan in programmes, including the IMF’s Extended Fund Facility and the World Bank’s Revi­talising, Innovating, Strengthening Educa­tion project. “We expect the extra funding to cover the government’s additional external financing needs in fiscal 2020,” it said.

Published in Dawn, April 24th, 2020

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