Global rating agency Moody’s Friday said that Pakistan’s weak debt affordability drives high debt sustainability risks as the government spends more than half its revenue on interest payments.

Moody’s commenting on newly finance bill for the fiscal year 2024-2025 said: “The budget estimated debt servicing payments to have increased by about 18pc for fiscal 2025 compared with a year ago. The government spends more than half its revenue on interest payments, indicating very weak debt affordability which drives high debt sustainability risks.”

About 55pc of fiscal year 2025 revenue (Rs9.8 trillion) is earmarked for interest payments on the government’s debt, the statement reads.

The rating agency said increase in expenditure lack significant cost-containment measures and Pakistan’s very high interest payments.

Subsidies bring little progress in energy reforms

The government subsidies increased by 27pc to Rs1.4 trillion “mainly driven by large increases in subsidies to the power sector” reflected litte progress in energy sector reforms.

Budget brings quicker fiscal consolidation

The rating agency said that budget reflected “quicker fiscal consolidation, but ability to sustain reforms will be key to easing liquidity risks”.

Moody’s said the Finance Bill 2024 “will likely support Pakistan’s ongoing negotiations with the IMF for a new Extended Fund Facility (EFF) programme that will be crucial for the government to unlock financing from IMF and other bilateral and multilateral partners to meet its external financing needs”.

The government’s ability to “sustain reform implementation” will be key to meeting the budget targets and unlocking external financing, which is necessary for easing of liquidity risks.

The statement reads, “A resurgence of social tensions on the back of high cost of living — which may increase because of higher taxes and future adjustments to energy tariffs — could weigh on reform implementation. Moreover, risks that the coalition government may not have a sufficiently strong electoral mandate to continually implement difficult reforms remain.”