Pakistan budget in line with expectation: Standard

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Singapore, June 12 (UNI) Standard&Poor's Ratings Services today said that Pakistan's 2009 fiscal, starting July 1, 2008, budget was broadly in line with expectations and has no impact on the sovereign credit ratings of the country.

Pakistan's foreign currency are B/Negative/B, local currency BB-/Negative/B.

The 2008-2009 fiscal budget published on June 11, 2008, aims to curtail the fiscal deficit to a planned 4.7 per cent of Gross Domestic Product (GDP) from about seven per cent this year, with an envisaged GDP growth rate of 5.5 per cent.

Notably on the expenditure side, there is some effort at reducing the subsidy burden, which had been one of the main causes of this year's large fiscal slippage, it said.

Subsidies for fuel, fertilizer, electricity, and food combined are set to fall to about 2.6 per cent of GDP, from four per cent this year, said Standard&Poor's.

On the revenue side, the government has proposed a relatively modest step toward expanding its narrow revenue base, noted the international rating agency.

By eliminating several tax exemptions, the tax-to-GDP ratio is expected to rise to about 11 per cent, from 10.6 per cent currently.

However, both the revenue generation and expenditure curtailment measures face significant implementation risks, given the ongoing political instability, in an inherently fragile coalition.

Revenue goals face additional risk from a slowing economy, as the official GDP growth forecast of 5.5 per cent could turn out to be over optimistic in light of monetary tightening and slowing foreign direct investment inflows.

''Overall, the budget handed down is consistent with our subdued expectations, which was partly why we lowered the rating by one notch on May 15, 2008, and maintained the negative outlook,'' Standard&Poor said.

The expected bilateral loans might give public finances some fillip and halt the rapid erosion of external liquidity. But while the fiscal consolidation and reforms under the previous administration have given the current government a little more room to maneuver, the rating would be lowered if fiscal and current account deficits do not improve, it said.

UNI XC MP CS1608

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