Fitch Ratings has projected Pakistan’s economic growth rate at 4.2% for fiscal year 2022 here on Monday. While the projection is lower than government’s target of 4.8%, Fitch said that this projection is based off of the steadily rising vaccination rates and supportive fiscal and monetary conditions in the country.
The New York based agency, which is considered to be one of the Big three credit rating agencies, said, “Improving vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation.”
Fitch said that the imports are expected to exceed the exports leading to a negative growth impact on the economy. Furthermore, it highlighted concerns regarding the increasing number of COVID-19 cases due to the fourth wave in the country, which could significantly impact the economic growth.
Fitch said that regarding the worsening of security conditions in the region due to extremist groups such as the Taliban could potentially result in social instability as well as pose a threat to the infrastructure. Consequently, deteriorating Pakistan’s export capability and gross fixed capital outlook as investors shy away from funding capacity building infrastructure.
In the wake of the fourth wave of COVID-19 in the country, the agency forecasts minimal damage to the growth trajectory owing to the government’s inclination for the “smart-lockdown” policy rather than resorting to nationwide lockdowns. As the vaccination rates improve, a positive impact on private consumption is expected. Such an increase in consumer spending can contribute to further improve the private consumption rate to 3.6% for the current fiscal year FY22 according to the revised forecasts of the agency.
On the vaccination front, around 22.8% of the population has been administered a single shot of the vaccine while 9.6% has received double shots as of September 12. These rates show a drastic increase compared to the numbers from June. As the vaccination numbers move towards attaining herd immunity, a positive consumer sentiment is expected.
Fitch notes strong signs of a recovering economy as the country achieves 44.1 reading in July owing to rising consumer confidence. Demand for major items has surpassed pre-pandemic demand levels. Combined with positive remittance growth and a strong economic growth outlook in the Gulf Cooperation Council (GCC) and European Union, further promote private consumption.
Forecast for Gross Fixed Capital Formation (GFCF) growth were also revised by the agency to 8% in the current fiscal year in comparison to 7.2% earlier. Government policies supporting fiscal and monetary conditions combined with rising external and domestic demand outlooks will drive the GFCF. These sentiments are reflected in the SBP conducted business confidence survey which showed the highest levels in June signaling optimistic business outlook in the country.
According to the State Bank of Pakistan, it expects 67% growth in the Temporary Economic Refinance Facility (TERF) loan disbursements in FY22 which will promote capacity enhancing investments in the country. Another contributor towards positive growth is the rising development spending as the government increased the budget for Public Sector Development Programme by 61% this year.
Previously, the forecast provided by the agency was 3.5% for the government consumption growth which has been revised to 4.3% as subsidies provided to the energy sector are expected to promote government consumption and improve the circular debt.
As the government plans on allocating $1.1bn for the procurement of COVID-19 vaccines, the imports are expected to increase more than the exports. A rebound in consumer spending as well as rising demand for capital goods is forecasted leading to further improvement in the economic outlook.
Previously, a 5pc growth was expected in the imports, however, the agency revised it to 8pc owing to rising fuel prices leading to a higher imports bill for Pakistan. This is in line with the fact that petroleum products contribute around 18pc to the total imports of the country. Brent crude oil prices are forecasted to average $72 per barrel, $69 and $ 43.20 in 2021, 2022 and 2020 respectively.