The Moody’s Investors Service, in its paper on Pakistan, has expected that the country’s GDP will contract by 0.5%. The IMF had earlier forecast that Pakistan’s GDP will contract by 1.5%.
The Moody’s report said Pakistan’s financing needs will rise because of coronavirus-related economic effects and the government has approved Rs 1.2 trillion stimulus package.
“Stimulus provides tax concessions for households and businesses, including the export and healthcare sectors and will widen the government deficit to 9.5%-10% of GDP in fiscal 2020.
“In fiscal year 2019 the deficit stood at 8.9%. despite strong revenue growth narrowing the deficit in the first half of fiscal 2020, the government revenue in the first half of this year rose almost 40% from a year earlier.
“Tax revenue is up by 18% and nontax revenue is more than double because of higher profits of the State Bank of Pakistan. Tax revenue is likely to contract in the second half compared with the year-ago period.
“The government debt will rise to around 87% of GDP by June 2020 from around 83% in June 2019. Debt of the government will gradually decline in subsequent years.
“In fiscal 2021, we expect the deficit to narrow owing to fiscal consolidation and IMF program. Deficit will remain wide at 8%-8.5% of GDP.
“G20’s recent offer of debt relief to low-income countries will also support Pakistan by deferring principal and interest payments on bilateral debt due between May and December. The deferrals may be extended and involve other creditors.
“The economy will gradually recover to grow by more than 2% in fiscal year 2021. Lockdown to curb the coronavirus will significantly curtail domestic consumption.
“This pose downside risks to economic growth may widen fiscal deficit. Currently we project higher government debt burden.”