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Fitch Solutions Forecast Pakistan’s Economic Growth at 4.2% in the Current Fiscal Year

September 21, 2021

Due to supportive monetary and fiscal conditions and improving vaccination rates, Fitch Solutions forecasted Pakistan’s economic growth at 4.2 percent in the current fiscal year (FY22), compared to the government’s target of 4.8 percent.

According to a report by Fitch Solutions, which provides financial information services, net exports will have a negative impact on headline growth because import growth will surpass export growth. The report also said thatImproving vaccination rates will boost private consumption growth, while supportive monetary and fiscal conditions will boost gross fixed capital formation.

The report claims that the risk to the growth outlook is skewed to the downside. Domestically, given the presence of the more virulent delta strain in the community, as well as the fact that only a small percentage of the population is fully vaccinated, a strong resurgence in Covid-19 infections could have a significant impact on growth.Externally, increased security threats from radical groups such as the Taliban could cause social unrest and infrastructure destruction. As businesses become hesitant to invest in capacity-building infrastructure, the country’s gross fixed capital outlook and exporting capabilities may suffer.

Due to the still high number of domestic cases, the growth forecast accounts for occasional tightening of Covid-19 restriction measures. Pakistan is currently dealing with its fourth wave of Covid-19 outbreaks. Nonetheless, the company did not expect Pakistan’s growth trajectory to be severely hampered because the government is likely to stick to its “smart-lockdown” strategy rather than imposing a nationwide lockdown.In addition, Fitch Solutions revised its forecast for private consumption growth to 3.6 percent in FY22, up from 3.4 percent previously. Despite the fact that this was still a slowdown from the 7.4% in FY21 due to waning base effects, rising vaccination rates will boost consumer sentiment.

Monetary policy accommodation, combined with disbursements from the SBP’s Temporary Economic Refinance Facility (TERF), will serve as additional tailwinds for capacity-enhancing investments, with the SBP expecting a 67 percent increase in TERF loan disbursements this fiscal year.Increased government development spending will be another driver of growth in this component, as the FY22 budget represented a 61 percent increase in Public Sector Development Programme allocations when compared to FY21.

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