Fitch Solutions on Monday forecasted Pakistan’s GDP growth rate for the fiscal 2021-22 at 4.2% against the government’s target of 4.8%, thanks to the favorable fiscal and monetary conditions and improving vaccination rates.
Fitch Solutions – which offers financial information services – said in its report that the growth forecast accounts for the occasional Covid-19 curbs as Pakistan is still struggling with the fourth wave of Covid-19 outbreaks. However, with the Pakistan government expected to continue with its “smart-lockdown” strategy instead of imposing a nationwide lockdown, Fitch did not expect the country’s growth trajectory to be severely curtailed.
“We also expect the economy to be buoyed by accommodative monetary and fiscal stances; public spending. A more assured economic outlook will bode well for consumption and investments, bolstering economic growth,” the UK-based research firm said.
On the external front, increased security threats posed by the Afghanistan situation could lead to social instability. This might negatively affect the country’s gross fixed capital outlook and exporting capabilities as investors may hesitate to invest in capacity-building infrastructure.
Key points of the Fitch report:
- Imports are expected to outpace export growth
- Elevated fuel prices will further increase Pakistan’s imports bill
- Risk to the growth outlook was weighted to the downside
- A strong resurgence in Covid-19 infections could weigh heavily on growth
- Forecast for government consumption growth was revised up to 4.3% from 3.5% forecasted previously
The rating company also revised its forecast for private consumption to increase at 3.6% in current fiscal year as compared to 3.4% previously. While this is still less than 7.4% in FY21, improving vaccination rates will boost consumer sentiment, facilitating a recovery in consumer spending, the report said.
“Improving vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation,” it said.
Fitch also revised its forecast for the gross fixed capital formation (GFCF) growth for fiscal 2021-22 to 8%, up from 7.2% previously. GFCF will be driven by strengthening domestic and external demand outlooks as well as favorable fiscal and monetary conditions. The report also expects the government and the private sector to ramp up spending and overseas Pakistanis to continue sending remittances during the fiscal year.