November 09, 2021 (MLN): Pakistan’s gross domestic product (GDP) could grow by 4-4.7% in FY22 if the government is successful in vaccinating the population and carries out reforms, said Institute of International Finance (IIF) Chief Economist for Middle East and North Africa Garbis Iradian while speaking to MG News.
“Growth will remain relatively strong at around 4% in FY2021/22, driven by the recovery in agriculture and services on the production side, and private consumption and public investment on the expenditure side,” he said.
The government is targeting economic growth of 4.8% for FY22. The National Economic Council earlier this year approved GDP target for FY22 expecting 3.5% increase in agriculture sector, 6.5% in industry and 4.7% in services.
“Risks to the outlook are broadly balanced. On the upside, faster vaccination rates and further progress in reforms could boost growth to 4.7% in FY2021/22. The downside risks stem from a resurgence of COVID-19 and the still-low vaccination rate in Pakistan,” he added further.
Iradian said the rupee will witness modest depreciation against the US dollar to Rs178 by June, 2022 on the back of widening current account deficit during the ongoing fiscal year.
“The exchange rate may depreciate modestly as the current account deficits is projected to widen from -$1.9 billion (-0.6% of GDP) in FY2020/21 to -$7.4bn (-2.4% of GDP) in FY2021/22,” he said while adding that “our revised projections show a modest depreciation [of PKR] from Rs157/USD in June, 2021 to Rs178/USD in June, 2022.”
However he added that “in our view, the State Bank of Pakistan [SBP] is aware of the challenges and will be able to manage the situation very well, thanks to the strong expertise of the Governor [Raza Baqir] and his deputies”, the chief economist added.
Iradian has also worked as senior adviser at the International Monetary Fund from 1991 to 2008.
Earlier in a report titled ‘Higher Energy Prices: Winners and Losers Across Emerging and Developed Economies (EMDEs)’, Iradian said that Pakistan is one of the ‘big losers’ from increase in oil prices. He said that among the net oil importers in EMDEs, for every $10 increase in oil prices, their current account deficit would widen by $25.4bn in India, $9.2bn in Turkey, $7.9bn in Thailand, and $4.1bn in Pakistan based on the expected increase in volume of oil imports.
“The policy rate may increase further to reduce inflationary pressures, which reached 9.2% year-on-year in October 2021. At the same time, the SBP will avoid large depreciations of the currency. The official reserves, excluding gold, remain at comfortable levels at $20.6 billion in October 2021,” he said.
Financial analysts in the country also expect the central bank to increase policy rate by 25-50 basis points in the next monetary policy committee meeting due in November.
In the ‘Higher Energy Prices: Winners and Losers Across Emerging and Developed Economies (EMDEs)’, the IIF said that Pakistan’s GDP will reach $344 billion in FY22 from $315bn in FY21 whereas the country’s reserves will fall to $18.4bn providing import cover for 2.7 months.
Pointing out the downside risks, Iradian said that security concerns from cross-border terrorist activities is an additional downside risk following the Taliban’s swift seizure of power in Afghanistan. Continued exodus of refugees from Afghanistan to Pakistan could also strain the finances of the government, he warned.
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