Pakistan Economy Growth Forecast Fitch Chops
KARACHI: The US Global Research House, Fitch Solutions, has updated Pakistan's economic growth prediction and believes that the tightening of IMF monetary and fiscal policies would have a negative effect on GDP growth.
“We at Fitch Solutions, have revised our forecast for Pakistan’s real GDP (gross domestic product) growth for FY2018/19 (July-June) and FY19/20 to come in at 3.2% and 2.7% respectively, from 4.4% and 4.0% previously (versus the Bloomberg consensus of 3.3% and 3.5%),” the global research house said in a report on ‘Economic Analysis.
“We believe that the bailout package from the IMF will see tighter monetary and fiscal policies in Pakistan, which will be negative for growth in the near term,” it said.
However, investment in the Economic Corridor (CPEC) between China and Pakistan will continue to provide economic assistance, he added.
Pakistan gained a 6-billion-dollar bailout plan with the IMF in May in order to tackle the balance of payments crisis following almost eight months of talks. The State Bank of Pakistan (SBP) improved the policy level by 150 bps as a result of the contract.
In June the Finance Ministry presented a budget aiming to reduce the primary deficit of Pakistan from 1.9% of GDP in FY18/19 in accordance with IMF estimates to 0.6% of GDP in FY19/20. At Fitch Solutions, we have amended (down) our projections for Pakistan's actual GDP development given the tighter fiscal and monetary policies, with the economic growth perspective undermined.
Higher Taxes to Wear Down the Purchasing Power
In FY19/20, consumption will decline from 6.3% in FY17/28, as purchasing power is expected to decrease to 5.3% in FY19/20 (around 82% of GDP). Inflation in Pakistan was rising, by 9.1% in May over the year, compared with 4.2% in the past year.
“Given our expectations for continued upside pressure on consumer prices over the coming months, we believe that the consumers’ purchasing power will continue to fall over the coming months, thereby weighing on consumption. However, we note that some of the effects of price hikes will be partially offset by the government’s populist measures, such as providing electricity subsidies to consumers who use less than 300 units of electricity per month,” it said.
Deteriorating net exports
Pakistan's net exports reported a surplus of around 11 per cent of GDP in FY17/18, are expected to improve little. according to global research house studies. In addition, in the coming months, the global slowdown is probable to affect production, despite attempts to enhance the competitiveness and the subsidizing of electricity and gas to the manufacturing and export industries.
“Moreover, we believe that imports could increase over the coming months acting as a slight drag on growth,” It was said that Pakistan's primary imports would probably have a weight on net exports considering the petroleum and its products (around 28 per cent of complete exports). “The impact of rising oil prices on imports will be exacerbated by a weakening currency,” it said.
Weakening Investment Position
It thinks that investments, which represent about 17% of GDP, will slow development to 5.1% in 19/20, compared with 5.7% in 17/18, as the closer financial strategy of the SBP is probable to weigh up expenditure.
The SBP improved its strategy level by 575bps since the start of the fiscal year (July 2018), up from 6.5% in early July 2018 by 12,3% in May. In addition, as part of the IMF agreement, the state has agreed to lend less of the SBP, thereby improving the transmission of monetary policies in the nation. Moreover, business sentiment in Pakistan is probably to stay subdued leading to slower investment growth, it said.