SINGAPORE: June 13, 2008--Standard & Poor's Ratings Services said today that Pakistan's 2009 fiscal year (starting July 1, 2008) budget was broadly in line with expectations and has no impact on the sovereign credit ratings of the country (foreign currency B/Negative/B, local currency BB-/Negative/B). The 2008-2009 fiscal year budget published on June 11, 2008, aims to curtail the fiscal deficit to a planned 4.7% of GDP from about 7% this year, with an envisaged GDP growth rate of 5.5%. Notably on the expenditure side, there is some effort at reducing the subsidy burden, which had been one of the main causes of this year's large fiscal slippage. Subsidies for fuel, fertilizer, electricity, and food combined are set to fall to about 2.6% of GDP, from 4% this year. On the revenue side, the government has proposed a relatively modest step toward expanding its narrow revenue base. By eliminating several tax exemptions, the tax-to-GDP ratio is expected to rise to about 11%, from 10.6% currently. However, both the revenue generation and expenditure curtailment measures face significant implementation risks, given the ongoing political instability, in an inherently fragile coalition. Revenue goals face additional risk from a slowing economy, as the official GDP growth forecast of 5.5% could turn out to be overoptimistic in light of monetary tightening and slowing foreign direct investment inflows. Overall, the budget handed down is consistent with our subdued expectations, which was partly why we lowered the rating by one notch on May 15, 2008, and maintained the negative outlook. The expected bilateral loans might give public finances some fillip and halt the rapid erosion of external liquidity. But while the fiscal consolidation and reforms under the previous administration have given the current government a little more room to maneuver, the rating would be lowered if fiscal and current account deficits do not improve.