Moody's Investors Service in a report published on Thursday said the mini-budget will help narrow the current account deficit.
According to the rating agency, the mini-budget announced on January 23 “places greater weight on improvements in tax administration”.
Also, if successful, the measures will assist the country’s manufacturing sector, promote exports and import substitution and help narrow the current account deficit.
“The current account deficit will narrow to 4.7% of GDP in fiscal year 2019,” the report predicted.
However, the ratings agency said the budget deficit will likely remain large as the government has ignored new spending cuts or revenue-raising measures. The large budget deficit will likely undermine the credibility of government efforts to achieve fiscal consolidation, it noted.
Stating that it will be difficult for the government to meet its deficit target of 5.1% of GDP, Moody’s predicted that the deficit will widen to 6% of GDP in fiscal year 2019 as revenue growth will possibly be below government projections.
The ratings agency projected that the current account deficit will narrow to 4.7% of GDP in FY19 and 4.2% in FY20 compared to 6.1% in FY18, however, it will remain sizable and wider than it was in 2013-16 driving the country’s external financing requirements.
Moody’s noted that Pakistan is in negotiations with the International Monetary Fund (IMF) over a new programme which would provide a stable additional source of external funding besides technical support and assistance on macroeconomic rebalancing and structural reform policies.