Credit rating agency Moody’s in its recent report about Pakistan has mentioned that the GDP growth of the country is expected to be around 5% for the fiscal years 2017 and 2018. The positive outlook by the credit rating agency can be attributed to the CPEC related projects currently under process as government spending on energy and transportation has increased significantly.
CPEC projects have been in full swing so far with the investment level pushed from $55 billion to $62 billion in April. The push in the investment level was done to establish industrial zones and infrastructural development. CPEC is now perceived as the key for Pakistan’s economical progress, with World Bank also saying that CPEC will bring increased investments in the country as a result of macro stability.
Moody in its report said that the budget deficit for Pakistan will be a little higher than expected by the company. During the budget speech on May 26th, Finance Minister Ishaq Dar said that budget deficit for 2017/18 will be 4.1% as compared to the current provisional budget deficit of 4.2% and at a peak of 8.1% in fiscal year 2013.
Moody in its report said, “The budget targets higher development spending-led growth. Implementation of the budget measures — as stated in the federal budget for the fiscal year ending June 2018 — would support Pakistan’s credit profile by helping to relieve supply-side infrastructure bottlenecks, which constrain the country’s economic development.However, budget execution risk is high, given ambitious GDP growth and revenue assumptions, as well as limited institutional capacity to spend development funds.”
Debt burden for Pakistan was at 67% of GDP in fiscal year 2016 with gross borrowing requirements at 32% of GDP. But the credit agency fears shortfall in revenue collection and increased pressure to spend more before the 2018 General Elections. The government expects capital expenditure to increase in government projects by 2%.
However the report says that it will be difficult for government to capitalize on its development targets this year as CPEC runs through the Afghan border that may turn out to be a target for terrorist in order to curb infrastructural development.