NEW YORK: US credit rating agency, Fitch Solutions, has forecast that Pakistan’s economy is expected to record real GDP growth of 4.2 percent in the fiscal year 2021-22, up from 3.9 percent in the fiscal year 2020-21.
In its report, Fitch Solutions said that Pakistan’s economy will expand 4.2% in the fiscal year 2021-22, helped along by higher public and private spending. It said the “vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation. Net exports will contribute negatively to headline growth as import growth is set to outpace export growth”.
The report said Pakistan is likely to continue with its ‘smart-lockdown’ strategy to fight the fourth wave of COVID-19, instead of imposing a nationwide lockdown, and Pakistan’s growth trajectory will not be “severely curtailed”.
“We also expect the economy to be buoyed by accommodative monetary and fiscal stances (public spending),” Fitch said. “A more assured economic outlook will bode well for consumption and investments, bolstering economic growth.”
Private consumption expected to grow by 3.6% The report said private consumption is also expected to grow by 3.6% in FY22 compared to 3.4% previously. “While this still represents a slowdown from the 7.4% in FY21 due to waning base effects, improving vaccination rates will buoy consumer sentiment, facilitating a recovery in consumer spending.”
Fitch revised its forecast for government consumption growth to 4.3% in FY22 from 3.5%. “Given the continued economic uncertainty from the pandemic we expect pandemic related spending to remain broadly similar to ensure the economic recovery does not fall off track,” it added.
The agency said the government consumption will also be boosted by subsidies to the power sector, to ameliorate the country’s circular debt.
Fitch expects net exports to subtract 1.0% points from headline growth, revised from -0.4% points previously. It expects imports to rebound more strongly than exports. “Additionally, the improving economic outlook will likely see a rebound in consumer spending and increased demand for capital goods.”
Pakistan’s export growth is expected to come in at 6.0%, Fitch said. “Export growth will be bolstered by robust external demand amid recoveries among Pakistan trading partners such as the US, China and the United Kingdom.”
“As these economies continue to normalise activity with the gradual easing of lockdown measures due to higher vaccination rates, the improvement in consumer sentiment in these markets will lead to stronger order flows,” Fitch said, adding the risk to the growth outlook of Pakistan is weighted to the downside.
On the domestic front, given the more virulent delta strain in the community, amid a still low percentage of the population that are fully vaccinated, a strong resurgence in COVID-19 infections could weigh heavily on growth.
“On the external front, heightened security threats posed by radical groups such as the Pakistan Taliban Group could lead to social instability and the destruction of infrastructure,” the report said.
“This might weigh on the country’s gross fixed capital outlook and exporting capabilities as businesses become hesitant to invest in capacity building infrastructure.”
Gross fixed capital formation (GFCF) contributed 0.8pp to headline figures supported by accommodative monetary policy. Government consumption contribution to GDP fell compared to 2020, adding 0.5pp to overall growth, compared with 0.8pp the previous year due to reduced fiscal support to the economy.
Net exports subtracted 2.7pp from the headline growth figure, dragged by a rebound in imports given stronger domestic demand and higher oil prices.
