S&P: Pakistan unaffected

Standard & Poor's said that the Islamic Republic of Pakistan's expansionary budget for fiscal year 2005/2006, announced this week, has no immediate rating implications.

Nevertheless, given that this budget is likely to result in a slower pace of debt reduction, and that the spending increase could potentially jeopardize price stability by exacerbating existing inflationary pressures, the government's present fiscal orientation may delay improvements to the ratings on Pakistan (foreign currency B+/stable/B; local currency BB/stable/B).

"The fiscal stimulus comes against the backdrop of record economic growth, expected to have come in at over 8% for fiscal year 2004/2005," said S&P credit analyst Agost Benard. "The attendant inflationary impetus has been considerable, with CPI rising to 11.6% in May 2005."

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