In its latest forecast, released on Monday, Fitch Solutions, has projected Pakistan’s real GDP growth rate to reach 4.2% for the ongoing fiscal year 2022. This forecast is in contradiction with the federal government’s ambitious target of 4.8% in FY22.
Given the fact that Pakistan recorded a growth rate of 3.9% in FY21 – against the backdrop of the pandemic – an expected growth rate of 4.2% by Fitch Ratings is a positive sign for Pakistan’s economy.
Several factors have been outlined by the US based credit rating agency that can affect the projected growth rate of 4.2%. Domestically, the presence of highly contagious delta variant of coronavirus among the population – coupled with low inoculation rates – pose a potent threat to the much-anticipated economic progress.
According to the agency, improved vaccination rates will support private consumption growth, while supportive monetary and fiscal policies will further boost gross fixed capital formation (GFCF).
As of September 21, 55.49 million people have received the first dose of vaccine while 24.87 million people have been fully vaccinated. The growth rate prediction has been made considering the occasional tightening of restriction measures. Furthermore, what further boosts the agency’s forecast is the assumption that the federal government will continue with its policy of smart lockdown, rather than a complete lockdown.
Externally, the resurgence of TTP in the tribal areas of Pakistan can thwart the socioeconomic stability and infrastructure development in Pakistan. This can have a detrimental effect on Pakistan’s gross fixed capital outlook and export capabilities as investors might refrain from investing in capacity building infrastructures.
Fitch Ratings Inc. has also revisited and revised its forecast about private consumption levels in Pakistan. Under current circumstances, private consumption is expected to grow by 3.6% in FY22 as compared to the previous forecast of 3.4%. In addition to this, Pakistan’s consumer confidence has reached its highest level of 44.1 in July, the highest since pre-pandemic levels. Car sales have surpassed the pre-pandemic levels indicating a strong economic recovery.
Fitch Solutions, New York based leading global credit rating agency expects Pakistan’s economy to record real GDP growth of 4.2 percent in the fiscal year 2021-22, up from 3.9 percent in fiscal year 2020-21.#PakistanMovingForward https://t.co/tidjqqQna9
— PTI (@PTIofficial) September 21, 2021
Furthermore, the State Bank of Pakistan expects a 67% growth in its Temporary Economic Refinance Facility (TERF) loan disbursements in FY22. SBP’s business confidence survey has recorded its highest ever level depicting a bright picture of Pakistan’s economic future.
The New York based credit rating agency expects government spending to grow by 4.3% in FY22; a 0.8% increase from its previous forecast. Vaccine procurement, subsidies to the power sector to curtail the country’s circular debt and increased public sector development spending will all contribute to increased government spending. The incumbent government, in its recent budget increased the PSDP’s allocation by a whopping 61%.
Lastly, imports are expected to increase by 8% in FY22 as Brent crude oil prices are predicted to be $72 per barrel in 2021 and $69 per barrel in 2022. Petroleum imports constituted 18% of total imports in FY21 and with the oil prices likely to increase to the levels, Pakistan’s import bill will increase. Therefore, the current account deficit is likely to increase in FY22 as imports are set to outpace exports.