Pakistan faces tough road ahead.

Byline: Salman Siddiqui

KARACHI -- Fitch Ratings has anticipated that Pakistan's borrowing will remain higher than what Islamabad has estimated to finance the fight against coronavirus pandemic, which will push its fiscal deficit up to 9.5% of gross domestic product (GDP) in the current fiscal year.

Earlier this week, the government of Pakistan projected the deficit at 9.1% for the outgoing year. It had set the original deficit target at 7.1% before the Covid-19 outbreak.

'Pakistan's fiscal consolidation targets presented in its FY21 budget on June 12 will be challenging to meet amid the economic shock and health crisis associated with the coronavirus pandemic,' Fitch - one of the top three global rating agencies - said.

It forecast the fiscal deficit at 8.2% of GDP compared to the 7% target for the next fiscal year (FY21), starting July. Increased borrowing would push 'the public debt-to-GDP ratio up to 89% of GDP', it said.

The government has estimated the debt-to-GDP ratio at 88% earlier this week. Fitch, however, left Pakistan's credit rating at 'B-' with a stable outlook.

IMF, other creditors

Fitch said the International Monetary Fund (IMF) and other bilateral and multilateral creditors would continue to help Pakistan finance its public support programmes due to emergence of the challenging health crisis.

'We expect the IMF to be flexible in its programme targets with Pakistan given the magnitude of the pandemic shock, and expect the release of accumulated tranches from the EFF (Extended Fund Facility) over the coming months. Additional financing has also been forthcoming from other multilateral and bilateral creditors,' the rating agency said.

Pakistan also received $1.4 billion in emergency support from the IMF under the Rapid Financing Instrument in April, in addition to the $6-billion loan facility under the EFF programme.

Foreign currency reserves

The country's rating also reflects a fragile external position given the sovereign's high external debt repayments. Liquid foreign exchange reserves remain low at around $10.1 billion, 'but import compression has increased the reserve import cover to about 3.6 months', it said.

'Moreover, lower oil prices are expected to offset the decline in remittances, which will keep the current account deficit stable at around 2% of GDP through FY21.'

External liquidity will be supported by the country's participation in the G20's Debt Service Suspension Initiative, which the government estimates...