The fiscal year (FY) 2025 federal budget, according to global ratings agency Fitch, "strengthens prospects for an IMF deal."
On June 12, the government unveiled the budget for the upcoming year. It included a bold goal of tax revenue of Rs13 trillion rupees ($47 billion) for the year beginning July 1, which represents a nearly 40% increase from the current year. Additionally, the budget deficit was sharply reduced, falling to 5.9 percent of GDP from 7.4 percent of GDP in the current year.
In a statement, Fitch stated that, under the assumption of a partial implementation of the budget, "the fiscal deficit will narrow." However, it remained uncertain whether budgetary targets would be totally realized.
It further stated, "This should lessen external pressures, albeit at a cost to growth."
The US-based organization recalled that the proposed budget deficit of 5.9% of GDP, down from the expected 7.4% of the previous year, and a 2% primary surplus were attributed to "wide-ranging tax increases and also significant fiscal efforts at the provincial level" in the budget draft.
Furthermore, according to a different analysis by rating firm Moody's, the government has forecasted headline inflation at 12 percent and real GDP growth of 3.6 percent. The goal was to raise federal government revenue to an ambitious Rs17.8 trillion, which is 46 percent more than what it was the year before.
The budget as a whole aims to increase central and provincial development spending by more than 58 percent, or around Rs3.8 trillion.
Our revised fiscal predictions, which assume partial execution, predict a primary surplus of 0.8 percent based on deficiencies in revenue generation and an overshoot IN underperformance in development spending partially offsets present spending.
"Despite some improvements in short-term indicators of economic activity, we believe tight policy settings may depress growth more than the government expects, and we have reduced our growth forecast to 3.0pc for FY25, from 3.5pc."
In the meantime, it is predicted that overall current spending will increase by 21% to Rs17.2 trillion, with defense spending rising by 14% to Rs2.1 trillion and power and other subsidies rising to Rs1.4 trillion.
The source went on to say that the coalition government's intentions were met with "stiff resistance" within parliament from allies, the opposition, and the general public following the elections on February 8 and a "weaker-than-expected mandate" for the incumbent administration.
Positively, it did mention that the main shortfall from the prior year The government's "unpopular subsidy reforms over the past year, supporting fiscal credibility" put the country "in line" with the goal.
Although Pakistan has a dismal track record of maintaining changes over time, the report stated that, at least temporarily, support for difficult policy decisions has increased due to the lack of strong alternatives.
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