Fitch predicts PML(N) hold on power for next 18 months

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MG News | July 17, 2024 at 11:48 PM GMT+05:00

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July 17, 2024 (MLN): PML(N)-led government will remain in power over the coming 18 months and succeed in pushing through with IMF-mandated fiscal reforms, the international credit rating agency BMI Fitch Solutions reported while sharing its projections regarding Pakistan's economy on Wednesday. 

The report added that the most likely alternative is a military-backed technocratic administration rather than fresh elections in the unlikely event that the government is replaced. 

On Imran Khan's imprisonment, the report is of the view that despite several successful legal appeals, opposition leader Imran Khan will remain imprisoned for the foreseeable future. 

"As we had predicted, economic activity in Pakistan was stronger than most analysts had expected in FY2023/24 (July 2023-June 2024)," it reads.

Economic growth in Pakistan will accelerate from 2.4% in FY2023/24 to 3.2% in FY2024/25, driven by monetary easing, improved agricultural output and slowing inflation. Risks are heavily weighted to the downside, it noted.

Pakistan's current account deficit will remain small but will widen from 0.8% of GDP in FY2023/2024 to 1.0% of GDP in FY2024/2025.

The slightly wider overall deficit will be due to a larger trade deficit, which will widen from 7.5% of GDP in FY2023/2024 to 7.7% of GDP in FY2024/25.

Risks are weighted towards a wider deficit, which could be caused by a jump in oil prices or lower-than-expected grain production,

Pakistani policymakers have had more success than we had expected in stabilising the rupee, and we now think that the big falls in the currency are behind us.

"We expect that the rupee will only weaken a touch over the remainder of 2024, slipping from PKR278/USD to PKR290/USD," it said. 

Risks remain weighted heavily towards a larger rather than a smaller depreciation.

Easing inflation in Pakistan will provide the State Bank of Pakistan (SBP) with the space to cut its key policy rate from 22.00% to 16.00% in 2024. 

The report expects that policymakers at the SBP will continue to loosen policy over the longer term, to 14.00% by the end of 2025. The key risk to this forecast is faster-than-expected inflation, which would cause policymakers to slow their easing cycle.

BMI further anticipated that the Pakistani policymakers will miss their ambitious budget targets, but they still expect that the deficit will narrow, slipping from 7.4% in FY2023/24 to 6.7% of GDP in FY2024/25.

Provided that the government remains on the current policy trajectory, the country will probably succeed in negotiating a longer-term deal with the IMF.

Risks remain weighted towards a much larger deficit. The economic recovery is fragile and another shock would quickly push up the cost of servicing Pakistan's large government debt burden.

Copyright Mettis Link News

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