KARACHI: The global ratings agency Fitch on Wednesday said that the federal budget 2024-25 “strengthens prospects for an IMF deal,” reported Dawn.com on Wednesday.

The government presented the budget for the next year on June 12, which contained an ambitious tax revenue target of Rs13 trillion ($47bn), a near-40 per cent jump from the current year, and a sharp drop in its fiscal deficit to 5.9pc of GDP from 7.4pc for the current year.

Fitch, in a comment, said it forecast “the fiscal deficit will narrow” assuming partial implementation of the budget — whether fiscal targets will be met entirely remained uncertain.

“This should reduce external pressures, albeit at a cost to growth,” it added.

The US-based agency recounted that the budget draft projected budget deficit of of 5.9pc of the GDP — from the previous year’s estimated 7.4pc — and 2pc primary surplus “on wide-ranging tax increases and also significant fiscal efforts at the provincial level”.

Additionally, a separate report by rating agency Moody’s said that the government has projected real GDP growth at 3.6pc and headline inflation at 12pc. It also sought to increase federal government revenue to an ambitious Rs17.8tr — 46pc higher than previous year’s.

Overall, the budget also seeks to boost development expenditure of the centre and provinces by over 58pc to nearly Rs3.8tr.

“Our updated fiscal forecasts assume partial implementation and project a primary surplus of 0.8pc, on shortfalls in revenue generation and an overshoot in current spending, partly offset by under-execution in development spending,” Fitch noted.

“We believe tight policy settings may depress growth more than the government expects, and have reduced our growth forecast to 3.0pc for FY25, from 3.5pc, despite some improvements in short-term indicators of economic activity,” it added.

Meanwhile, the total current expenditure is estimated to surge by 21pc to Rs17.2tr, with power and other subsidies jumping to Rs1.4tr and defence expenditure by 14pc to Rs2.1tr.

The agency added that its forecast reduction was due to the plans of the coalition government facing “stiff resistance” inside parliament from allies, opposition and among broader society after the Feb 8 elections and a “weaker-than-expected mandate” for the current government.

Published in Dawn, June 20th, 2024