S&P: Pakistan 'expansionary stance' on budget a concern

Standard & Poor's said that the expansionary stance of the Islamic Republic of Pakistan's (foreign currency B+/positive/B, local currency BB/stable/B) proposed budget for fiscal 2006-2007 raises concerns over the country's fiscal position given its existing weaknesses.

Although the budget has no immediate impact on the sovereign credit ratings, signs of further fiscal slippage could warrant a downward revision of the outlook, the agency said.

"By relegating fiscal consolidation as a policy objective, the proposed budget will prolong vulnerabilities stemming from Pakistan's high debt and debt-service burden, while its impact on aggregate demand is set to extend pressures on inflation and contribute to rising external imbalances," said S&P credit analyst Agost Benard.

Spending plans focus on several key areas of human and infrastructure capital, including health care, education and public utilities, the agency added.

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