Moody's Investors Service said that the Pakistan government's (B3 stable) re-assertion of its commitment to moderate deficits when it released its FY2018 budget is credit positive for the sovereign, but the level of execution risk for the budget is high. In his budget speech on 26 May, Finance Minister Ishaq Dar announced a 4.1% of GDP fiscal deficit target for FY2018, similar to the 4.2% provisional estimate for FY2017, and much lower than a peak of more than 8.1% of GDP in FY2013. Commitment to moderate deficits is credit positive for Pakistan whose debt burden, at nearly 67% of GDP in 2016, and large gross borrowing requirements, at nearly 32% of GDP, are constraints on the sovereign rating. 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. "In particular, we expect further revenue collection shortfalls and pressure to increase current spending before the 2018 general election," Moody's said. Moody's conclusions are contained in its just-released report on Pakistan, "Budget Commitment to Moderate Deficit Is Credit Positive; Targets Are Ambitious". — SG
