Islamabad:
Moody’s, a global credit rating agency, asked on Tuesday about the consequences of missing out on a key goal to increase the tax-to-BNP relationship to 10.6% in the last financial year when Pakistan made an emphatically pitch for an upward revision in the current unwanted assessment.
The Credit Rating Agency also asked about progress in the trade negotiations with the United States, and whether the central bank was still exercising any control over imports and the exchange rate market, according to officials interested in the meeting details.
Moody raised these questions during a session with Pakistan’s Finance Minister Muhammad Aurangzeb. Prime Minister for Financing Bilal Kayani and Governor State Bank of Pakistan Jameel Ahmad also participated in the session, which would decide whether the assessment agency would upgrade Pakistan in his next announcement.
Pakistan’s current Moody’s rating is CAA2 with a positive sight. This rating was upgraded from CAA3 with a stable sight in August 2024. But it is still below the investment quality and inhibits Pakistan’s smooth entry into the international capital markets to raise debt.
According to the officials, Moody asked about the impact of missing out on the tax-to-BNP relationship in the last financial year on the goal of this financial year. Aurangzeb said the Federal Board of Revenue (FBR) would give a separate briefing to the Rating Agency to tackle any of its concerns, according to the officials.
FBR’s tax-to-BNP ratio remained in just over 10.2% compared to the target of 10.6%, after FBR could only collect RS11,745 trillion in taxes in the financial year 2024-25. The government missed the annual tax collection target with a margin of RS1,225 trillion.
After the meeting, Moody’s team was provided with a comprehensive overview of Pakistan’s reform journey with special emphasis on improving the tax-to-BNP relationship through technology-driven tax administration reforms, digitization of systems and robust enforcement measures.
The Minister emphasized that, under the direct supervision of the Prime Minister – who is the chairman of regular meetings of tax reform – the government implemented measures to extend the tax base, pluggers and improve compliance. Aurangzeb noted that the RS2 Billion revenue that the delta reached this year had come through autonomous efforts and the government was firmly obliged to reach a tax-to-BDP target of 13 to 13.5% in the next few years, according to the ministry.
Moody’s also asked about the details of the trade negotiations in Pakistan-USA, but the government did not share any details, except that the agreement was soon expected. The sources said the United States has asked for preferential trade treatment, which Pakistan has proposed to sign a covenant.
“Ongoing discussions with the United States on Preferential Customs Access were noticed as making encouraging progress,” the Ministry of Finance said after the meeting.
There were also questions about the average interest rate used by the government for the award of RS8.3 trillion for debt service for this financial year. Moody’s was informed that an average interest rate of 12% had been used for this financial year.
Moody asked about the movement in the exchange rate and any restrictions on imports. The central bank clarified that the exchange rate was marketed and that there were no restrictions on imports.
Rupee has again started to come under pressure, and the gray market reappears at a rate that is approx. RS7 per Dollar higher than interbank rate, according to the Exchange Market Dealers.
According to the Ministry of Finance, the finance department provided an in -depth briefing on Pakistan’s macroeconomic views, reform agenda and financial stability.
“Looking ahead, the Minister of Finance expressed optimism that the improved macroeconomic indicators and reform Momentum would be recognized positively by assessment agencies, which further strengthens Pakistan’s case to exploit international markets and elaborate on its external sector stability,” the ministry said.
Aurangzeb and his team presented convincing evidence of macroeconomic recovery, including a sharp reduction in inflation, a reduction in the policy rate, stabilizing the exchange rate, a surplus on current account and an increase in currency reserves – crossing $ 14 billion at the end of June, the ministry said.
It added that the improvements in transfer flow and export benefit were also mentioned as a sign of resilience and renewed investor confidence.
During the session, Finance Minister Moody’s team of the significant steps evaluated by Pakistan to stabilize its finances and lay the basis for sustainable and inclusive growth, added.
He emphasized the successful implementation of the final International Monetary Fund (IMF) review during the standby event, including the payment of the second tranche and progress under resilience and sustainability facility (RSF), as important milestones that have restored confidence in Pakistan’s financial management.
The minister highlighted a number of structural reforms made by the government to anchor long -term stability. These included cautious fiscal measures in the recently announced budget, customs and trade liberalization aimed at export-led growth and coordinated efforts to rationalize expenses.
The meeting also outlined Pakistan’s re-involvement with the global financial markets, including the successful $ 1 billion scheme in commercial funding from the Middle Eastern region, plans for an inauguration panda bond, and Pakistan’s intention to explore Eurobond and other international debt markets as credit assessments are improved.
The Minister of Finance also addressed inquiries from Moody’s team and repeated Pakistan’s obligation to keep the course on macroeconomic reforms, including in privatization, restructuring of state -owned companies (SOEs) and the rights of the government.
