ISLAMABAD - The government's efforts to recover dwindling economy faced another setback when on Tuesday Moody's, an international credit rating agency, cut its outlook for Pakistan sovereign bond from stable to negative. The Moody's says depleting foreign exchange reserves and risks to economy from growing extremism and high inflation undermine the reforms' process. Such a situation can hold up liberalisation, deregulation and privatisation process, it adds. The Pakistan People's Party-led coalition government has introduced a plan to stabilise economy. The package focuses on tightening belt by reducing development expenditure and subsidies elimination, and attracts foreign investment by privatising oil, gas and power sectors. The new negative outlook would impact Pakistan's efforts to attract foreign currency to meet its current account deficit and support sliding reserves. The total reserves have fallen to US $ 8.912 billion. The current account deficit widened to US $ 2.57 billion or 1.6 per cent of Gross Domestic Product in the first two months, July-August, of the financial year 2008-09. The government has estimated the current account deficit at 6 per cent of the total size of economy. Inflation has also increased by 25 per cent during the first two months of the financial year, which is more than the double of government's annual projection of 12 per cent. Former minister for finance Sartaj Aziz said, "This was expected after Saturday attack on Marriott Hotel, which has shaken investors' confidence," adding the out flight of capital would be accelerated now. The investors are taking out their money at a rate of US $ 200 to 250 million per week. This is also putting extra pressure on Pak rupee, which has depreciated over 20 per cent against US dollar in the past few months. Sartaj Aziz said that once again increasing oil prices would also put more pressure on foreign currency reserves. On Tuesday, the crude oil was traded at over US $ 100 per barrel after hitting a low of US $ 88 per barrel just a few days back. "The government will have to wait for quite long time if it wants to go to international financial market to issue any bond," the former finance minister said. The agency also showed concern about "arrears on sovereign debt and missed repayments as Islamabad's access to foreign exchange worsens". "The government needs to step up and take some quick, concrete and constructive measures on the economic front to promote exports and curtail imports. Otherwise there will be no improvement." An official of Federal Board of Revenue told TheNation that there was no much space available to compress the imports. He said after increasing taxes on import of luxury items, which was estimated to save US $ 700 million to US $ 1 billion over a year, there was no more space available. Pakistan's major imports were crude oil, palm oil and machinery and any attempt to restrict them would pose drastic impacts on economic growth and consumption pattern, he added.