On Monday, Fitch Ratings predicted that Pakistan’s economic growth will be 4.2 percent in the current fiscal year (FY22), compared to the government’s objective of 4.8 percent. This is due to favorable monetary and fiscal conditions as well as rising vaccination rates.
It was underlined by the New York-based agency, which is one of the three major global rating agencies, that net exports would be a drag on headline growth since import growth would surpass export growth. According to the report, improving vaccination rates will boost private consumption growth, while supportive monetary and fiscal conditions will act as tailwinds for gross fixed capital creation.
According to the rating agency, the risk to the growth outlook was disproportionately on the downside. On the domestic front, given the presence of the more virulent delta strain in the community and the fact that only a small percentage of the population is fully vaccinated, a significant rise in Covid-19 infections might have a significant negative impact on growth.
Externally, increased security risks from extremist groups such as the Taliban might lead to widespread unrest and the destruction of infrastructure, according to the United Nations. As a result, firms may be hesitant to invest in capacity-building infrastructure, which might have a negative impact on the country’s gross fixed capital formation and exporting capacities.
Occasionally strengthening Covid-19 limitation restrictions as a result of the high number of domestic cases, which is factored into the growth prediction is taken into consideration.
This comes as Pakistan is battling the fourth wave of Covid-19 outbreaks that have hit the country in recent years. Nonetheless, the agency predicted that Pakistan’s growth trajectory would not be significantly curtailed because the government is likely to continue with its “smart-lockdown” plan rather than implementing a statewide lockdown.
Fitch upped its prediction for private consumption growth to 3.6 percent in FY22, up from 3.4 percent in the previous forecast. While this indicated a slowdown from the 7.4pc recorded in FY21 as a result of diminishing base effects, it was predicted that higher vaccination rates would boost consumer morale, hence allowing recovery in consumer expenditure.
At the time of this writing, 22.8 percent of the population has received at least one dose of the vaccine, with 9.6 percent of the population having received all three doses. Despite the fact that the country is still far from obtaining herd immunity (which requires at least 70% of the population to be fully vaccinated), these data reflect a nearly seven-fold increase in the time since June.
According to the report, consumer confidence in the country increased in July, reaching 44.1, the highest level since September 2019. (pre-pandemic levels). Purchases of important commodities such as passenger vehicle sales have surpassed pre-pandemic levels, indicating a resurgence in consumer demand. Additionally, the prospect of continued robust remittance growth, along with a more optimistic economic growth prognosis in the economies of the Gulf Cooperation Council (GCC) and the European Union, will help to boost private consumption.
Moreover, the agency raised its forecast for growth in gross fixed capital formation (GFCF) to 8% in FY22, from 7.2% in previous forecasts. The growth of the global fixed capital formation (GFCF) will be fueled by increasing domestic and international demand forecasts, as well as supportive monetary and fiscal conditions. Since its founding, the State Bank of Pakistan (SBP) has conducted a monthly business confidence survey, which has reached its best levels ever in June. This reflects growing confidence in the country’s economic prospects.