Pakistan economy faces considerable challange; study

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New Delhi, Mar 26 (UNI) An international rating agency today said though immediate political risks have eased considerably in Pakistan with the election of a new parliament and a coalition cabinet, yet the new administration faces considerable challenge of arresting growing fiscal and external imbalances.

Given "an untested and potentially fractious cabinet", Prime Minister Raza Gilani may prove illequipped to handle the task, Standard and Poor's (SSP'S) said in an analysis released from Singapore.

For the first half of fiscal 2008 (ended December 2007), Pakistan bu dget deficit stood at 3.6 per cent of GDP, compared with 1.9 per cent in the previous corresponding period and a four per cent target for this fiscal year, said S&P's credit analyst Agost Benard. He attributed it to stagnant revenue collection, up by just 1.8 per cent year on year, and large rises in debt service and subsidy costs.

"This clearly indicates that the new government will need to take comprehensive policy action," Benard said. The full year's deficit is now likely to be about 6 per cent of GDP, a fiscal gap reminiscent of the 1990s, and which contrasts with 2-3 per cent of GDP lows achieved some years ago and the much smaller slippage that occurred due to earthquake-related spending in 2005.

The agency said new constellation of political forces, however, poses a number of risks as neither major coalition party has a particularly strong mandate. Pakistan People's Party (PPP) has 121 seats and Pakistan Muslim League faction led by former Prime Minister Nawaz Shariff(PML-N) 91 members in the 342- seat National Assembly. It is imperative the new administration is able to compromise and cooperate to avoiding coalition infighting, political stalemate, and associated policy paralysis.

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