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National economy departs towards ‘stability’

Political instability is expected to be continued because of recent change in government

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Pakistan’s economic situation has been no less than a rollercoaster ride with a number of serious challenges arising in last couple of months. On positive side, recent developments are showing “signs of economic stability” according to the Topline Securities’ comprehensive report on Pakistan’s economy’s outlook published on Monday.

Beginning with the trade deficit which has been reduced by 18 percent in June 2022, the report expects that the current account deficit (CAD) is going to be lesser than market estimate for FY23. The report expects CAD ofUS$8.7bn (2.3% of GDP) in FY23 lower than SBP latest estimate of $US10bn and other players estimate of $US11-15bn. In FY22, country’s CAD clocked in at US$17.4bn (4.5% of GDP).

Read more: Pakistan’s trade deficit declined by 18 percent in July 2022

Moreover, imports are declining at higher than expected rate due to government’s timely measures and market driven exchange rate. According to the report, it is expected that FY23 imports as per SBP reporting to decline by 13 percent to US$62bn (versus US$72bn in FY22) due to tighter monetary and fiscal policy and lower international commodity prices.

However, funding gap for FY23 is now estimated at US$32.2bn including debt repayment of US$23.5bn which is much lower than earlier estimates due to lower than expected current expected. Consequently, roll over risk will reduce especially for US$1bn of Eurobond and US$4bn of commercial loan in FY23 as reliance on commercial borrowing may not be needed due to lower than expected CAD.

Moving ahead, the report discusses the revival of loan programme by the global lender stating that with almost all conditions of IMF been met, IMF’s $1.2bn tranche after a delay of few months will be released after board approval which is expected by August end. Staff level agreement was reached on July 13 and Pakistan met prior conditions pertaining to energy tariff adjustments, increase in taxes and petroleum levy. This IMF endorsement will also help Pakistan in getting other inflows and rolling over bilateral and multilateral loans.

Regarding rupee depreciation, Topline Securities expect Pak-rupee (PKR) to strengthen after falling by Rs.48 or 21 percent in 2022 to date against the greenback, assuming oil and other key import prices to remain in check. They expect PKR to range between Rs. 200-240 during FY23where on average basis it is likely to settle at around Rs. 220 vs. average of Rs.178 in FY22.

Furthermore, inflation is estimated to remain close to SBP’s revised estimate of 18-20 percent in FY23. However, year-on-year CPI is expected to start falling from Sep 2022 as inflation will likely peak in Aug 2022. On the basis of this, Topline Securities shared their thought that interest rates are near its peak where policy rates are seen to be coming down from 15 percent to 13.5 percent by June 2023.

However, political instability is expected to be continued because of recent change in government. According to the report, current government would complete its tenure and elections will take place in 2023 which will be key for economic stability.

Moreover, the report states that the stock market has already adjusted for tough measures taken by government and SBP. With signs of economic stability, this is time to re-enter into Pakistan Stock Exchange (PSX), as the benchmark KSE-100 index is projected to grow 25% to 52,000 points over the rest of 11-month (Aug-Jun) of the current fiscal year 2023, the report stated.

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