Moody’s Warns of High Debt Sustainability Risks for Pakistan
Global rating agency Moody’s recently highlighted Pakistan’s weak debt affordability, emphasizing the high risks associated with debt sustainability. The government spends over half of its revenue on interest payments, indicating a severe lack of debt affordability.
In response to the finance bill for the fiscal year 2025, Moody’s noted a significant increase in debt servicing payments compared to the previous year. Approximately 55% of the government’s revenue for fiscal year 2025 is allocated to interest payments on its debts, raising concerns about the country’s debt sustainability.
Moody’s also expressed skepticism regarding the lack of cost-containment measures and the substantial increase in subsidies, particularly in the power sector. While the budget reflects faster fiscal consolidation, sustaining reforms will be crucial to alleviate liquidity risks.
The agency acknowledged the importance of the finance bill in supporting Pakistan’s negotiations with the IMF for a new Extended Fund Facility program, essential for securing external financing. However, Moody’s cautioned that social tensions and the government’s ability to implement reforms effectively could pose challenges in meeting budget targets and unlocking external financing.
World Bank Predicts Economic Growth for Pakistan
The World Bank’s ‘Global Economic Prospects’ report anticipates Pakistan’s growth to reach 2.3% in FY25. Improved industrial activity and confidence are expected due to relaxed import restrictions and lower inflation rates. Continued macroeconomic stability and structural reforms could further enhance investor confidence and support economic growth.
While inflation remains a concern, foreign exchange reserves have increased, signaling a positive trend in managing currency pressures for Pakistan. Overall, addressing debt sustainability and implementing structural reforms will be crucial for Pakistan’s economic stability and growth in the coming years.