Islamabad, Nov 19: Moody’s Warns Interest Costs Could Consume 40% of Pakistan’s Budget by 2025. According to Moody’s Investors Services (Moody’s), interest expenses would make up about 40% of total spending in Pakistan in 2025, up from about 25% in 2021.
In a report titled “2025 Outlook Stable as economic risks recede, geopolitical and trade risks persist,” Moody’s said that Pakistan’s government debt affordability would continue to be lower than it was before to the epidemic.
In Asia-Pacific (APAC), Pakistan is particularly susceptible to crises in food security. The affordability of government debt in emerging and frontier countries will continue to be lower than it was before to the epidemic, especially in Egypt, Nigeria, and Pakistan (Caa1 and Caa2, respectively).
To ease liquidity constraints, Pakistan has consented to a new $7 billion International Monetary Fund (IMF) initiative. However, sovereigns’ maturing debt is frequently not entirely replaced by funding from concessional lenders. Additionally, it may be challenging to meet the conditionality of new multilateral financing, which could raise social hazards.
In 2025, certain sovereigns, such as Bahrain (B2 stable) and Tunisia, will have to deal with eurobond redemptions that exceed ten percent of their usable international reserves. Many sovereigns will also have significant local currency financing needs; even after default, Pakistan and Zambia’s gross domestic finance needs will exceed 10% of GDP (Caa2 steady). According to the rating agency, local and foreign currency liquidity problems will continue to be a major cause of defaults.
Even though the advantages will be diminished, median debt affordability in advanced economies in 2025 will still be higher than it was prior to the epidemic. Greece is an anomaly, where deleveraging will continue to make debt more affordable. It further stated that debt affordability will drastically worsen in the US and France.
Global military spending is also rising due to geopolitical concerns, according to Moody’s.More European governments are increasing defense expenditure to reach the NATO aim of at least 2% of GDP after years of underinvestment and the escalating Russian threat.
In 2025, Japan’s (A1 stable) Defense Capability Buildup Program will continue to take up a larger portion of its budget, and India’s defense budget will likewise increase quickly due to tensions with China and Pakistan.
Low-rated frontier markets like Mozambique (Caa2 stable) and Rwanda (B2 stable) in SSA, Nicaragua (B2 stable) and Honduras (B1 stable) in Latin America, and Bangladesh and Pakistan in APAC are most susceptible to food security crises, even though we anticipate that global food prices will stay significantly lower than they have been in recent years.
