FROM PAGE B1

citing continued fragility in the banking sector, weak private-sector credit growth, shortcomings in the policy framework and an uncertain external environment that continues to weigh on investment.

Fitch kept its FY27 fiscal deficit forecast unchanged at 3.6 percent of GDP, matching the government’s target. However, the agency said this reflects expectations of both lower revenue and lower expenditure than projected in the budget.

Fiscal performance in FY26 illustrated that pattern.

The revised deficit estimate for FY26 is reduced to 3.3 percent of GDP from the original 3.6 percent, supported by lower-than-expected spending disbursements. Revised revenue estimates are slightly above the budget target.

Fitch said this reduces the risk of near-term slippage on the headline deficit, but also underlines how difficult it may be to implement the FY27 budget in full.

Over the medium term, the agency said improvements in revenue collection and economic growth would depend on whether the government could deliver reforms more effectively than in the past.

The authorities aim to raise the revenue-to-GDP ratio to 11 percent by FY30-FY31, increase total investment to 40 percent of GDP and lift foreign direct investment to 2.7 percent of GDP. These measures are intended to boost real GDP growth to 8.5 percent while bringing inflation down to 5 percent.

The budget includes several initiatives intended to support investment and export growth.

The government has reduced withholding tax on machinery rental payments to non-residents to 7.5 percent from 15 percent, highlighted bridge and expressway projects, and continued to promote public-private partnership initiatives.

It has also retained the 2.5 percent cash incentive for remittances sent through formal channels and extended duty-free import facilities and bank guarantees for raw materials and intermediate goods to encourage export diversification beyond the ready-made garment sector.