By Staff Reporter
ISLAMABAD: Pakistan’s economic growth is expected to accelerate to 3.2 percent in the fiscal year 2024-2025, driven by monetary easing, improved agricultural output, and slowing inflation, a Fitch Ratings affiliate said on Wednesday.
“Policymakers have had more success than we had expected in stabilising the rupee, and we now think that the big falls in the currency are behind us,” Fitch affiliate BMI said in Pakistan Country Risk Report.
The report predicted that the Pakistani rupee will only weaken slightly, slipping from PKR278/USD to PKR290/USD over the remainder of 2024.
Easing inflation will provide the State Bank of Pakistan (SBP) with the space to cut its key policy rate from 22.00 percent to 16.00 percent in 2024, and 14.00 percent by the end of 2025, the report said.
However, the key risk to this forecast is faster-than-expected inflation, which would cause policymakers to slow their easing cycle.
The ratings agency predicts that the country’s current account deficit will remain small but widen to 1.0 percent of GDP in FY2024/2025, while the trade deficit will expand to 7.7 percent of GDP. Risks are weighted towards a wider deficit due to potential jumps in oil prices or lower-than-expected grain production.
Despite these positive forecasts, Fitch warns that risks to the growth outlook are heavily weighted to the downside, citing Pakistan’s fragile political situation and potential external shocks.
Rating agency said pro-military parties were successful in creating a new coalition government following the February election, however, the strong electoral performance of independent candidates backed by jailed opposition leader Imran Khan suggests that there is significant dissatisfaction with the current political elite.
“The country’s fragile political situation could also derail the recovery,” the report said. “Another round of protests in urban areas could disrupt economic activity.”
Fitch expects that the PML(N)-led government will remain in power over the coming 18 months and will succeed in pushing through IMF-mandated fiscal reforms.
“Despite several successful legal appeals, opposition leader Imran Khan will remain imprisoned for the foreseeable future,” the report added. “In the unlikely event that the government is replaced, the most likely alternative is a military-backed technocratic administration rather than fresh elections.”
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