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ISLAMABAD, July 27 (TNS):\u00a0Moody\u2019s Investors Service on Friday cautioned expected Pakistan Tehreek-e-Insaf (PTI) government to walk a tight rope as its plan to increase development and social spending as well as reduce taxes will clash with the need to further tighten monetary and fiscal policies to reduce economic vulnerabilities, said.<\/p>\n
In its note on Pakistan\u2019s general elections, Moody\u2019s, one of top three credit rating agencies, has cautioned that some tough policy decisions may be delayed due to implementation of election manifesto of the government-in-waiting.<\/p>\n
Moody\u2019s has termed \u201cheightened external vulnerability\u201d a key challenge for the new government. \u201cPossible policy options would include monetary and fiscal policy tightening, further exchange rate depreciation and turning to the IMF for external financing,\u201d it added.<\/p>\n
The New York-based agency also warned about the risks that may further delay policy tightening and reduction in budget deficit. \u201cThe implementation of such measures may face delays as PTI\u2019s election pledge also includes increasing social spending, reducing taxes \u2013 as part of tax reform plans \u2013 and lowering energy costs.\u201d<\/p>\n
It said that the new government may have to turn to the International Monetary Fund (IMF) to overcome these challenges. Asad Umar, the man tipped to lead the finance ministry, has already hinted at the IMF option.<\/p>\n
It is widely expected that the IMF will also ask for a steep cut in expenditures, increase in interest rates and further devaluation of the rupee against the US dollar. The rupee has already shed its value by close to 22% against the US dollar since December 2017.<\/p>\n
The PTI government will also face a challenge in the upper house of parliament where it does not enjoy a majority. It may have to reach a compromise with opposition parties in order to introduce legislation.<\/p>\n
Pakistan faces an immediate challenge to arrange around $11 billion in order to meet the external financing gap in the ongoing fiscal year.<\/p>\n
Pakistan booked its highest current account deficit of $18 billion in the last fiscal year, which was equal to 5.8% of gross domestic product (GDP). The Ministry of Finance has not yet officially released the budget deficit figures, but provisional estimates suggest the deficit would remain close to 7% of GDP or Rs2.4 trillion.<\/p>\n
Both the budget deficit and current account deficit have reached unsustainable levels, which Pakistan cannot afford due to low level of official foreign currency reserves at $9 billion and low tax-to-GDP ratio, standing at only 11.1% by the end of 2017-18.<\/p>\n
PTI\u2019s plan to lower the number of taxes and their rates to improve the country\u2019s competitiveness will make it difficult to achieve fiscal consolidation in its initial years. The party also plans to lower the cost of doing business by decreasing energy cost.<\/p>\n
Moody\u2019s said that in the longer term, Pakistan\u2019s credit challenges include the country\u2019s very low global competitiveness; institutional weaknesses relating to governance, rule of law and control of corruption; and a narrow tax base.<\/p>\n
\u201cWe expect the ongoing implementation of the China-Pakistan Economic Corridor to drive improvements in power supply and infrastructure, which should raise economic competitiveness and boost industrial activity over time.\u201d<\/p>\n
The credit rating agency said that the anti-corruption platform that PTI contested on has the potential to address some long-standing institutional weaknesses, although measures to improve governance and reduce corruption will be challenging for any new government to implement.<\/p>\n
\u201cWe think the narrowness of the country\u2019s tax base will remain a key challenge for the new government.\u201d<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
ISLAMABAD, July 27 (TNS):\u00a0Moody\u2019s Investors Service on Friday cautioned expected Pakistan Tehreek-e-Insaf (PTI) government to walk a tight rope as its plan to increase development and social spending as well as reduce taxes will clash with the need to further tighten monetary and fiscal policies to reduce economic vulnerabilities, said. In its note on […]<\/p>\n","protected":false},"author":1,"featured_media":56056,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[59],"tags":[],"class_list":["post-73902","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business"],"_links":{"self":[{"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/posts\/73902","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/tns.world\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=73902"}],"version-history":[{"count":1,"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/posts\/73902\/revisions"}],"predecessor-version":[{"id":73903,"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/posts\/73902\/revisions\/73903"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tns.world\/index.php?rest_route=\/wp\/v2\/media\/56056"}],"wp:attachment":[{"href":"https:\/\/tns.world\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=73902"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tns.world\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=73902"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tns.world\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=73902"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}