AAJ TV : Pakistan Ki Awaz

ISLAMABAD : Doubts over the ‘timing and nature' of the external financing that Pakistan is banking on to cover its fiscal deficit need to be removed before any review of its lowly soverign credit rating can take place, an analyst for Moody's Investor Services said on Monday.

Rated deep in junk bond territory, Pakistan was saved from a balance of payments crisis and default by a $7.6 billion emergency loan package from the International Monetary Fund in November last year.

But an annual budget announced on Saturday showed the nuclear-armed Muslim ally of the West needed more foreign support to help recover from virtual recession while also fighting a Taliban insurgency raging in its northwest.

"We recognise the improvement in terms of sovereign ratings but we need more reassurance of the timing and nature of the external financing," said Aninda Mitra, Moody's sovereign analyst for Pakistan.

Moody's cut Pakistan's credit rating to B3 last year with a negative outlook due to the balance of payments crisis.

Pakistan's foreign reserves dropped to $6.6 billion in November last year, but have since recovered to $11.5 billion.

Pakistan targeted a fiscal deficit of 4.9 of GDP in the budget for 2009/10 (July-June) announced on Saturday. The budget foresaw external borrowing covering nearly 265 billion rupees ($3.2 billion) of the projected 722.5 billion rupee deficit.

De facto finance minister Shaukat Tarin said on Sunday he was confident that foreign funds would come in, adding that $4.8 billion had come in this year from multilateral agencies and another $4 billion was expected next year.

Mitra said described the budget as "supportive" but the dependence on foreign inflows created uncertainties.

"It's a matter of flows being smooth enough to meet expenditure needs," he said.

Tarin said Pakistan expected the IMF to finalise an additional stand-by facility of $4 billion at its next board meeting.

He said this would only be drawn down to bridge any gap in other inflows, notably from governments and other lenders grouped in the "Friends of Pakistan" international donors forum.

The 2009/10 budget factored in 178 billion rupees ($2.2 billion) of aid coming from the "Friends of Pakistan", but Tarin expected a total of $5.28 billion from this source over the next two years.

Copyright Reuters, 2009