S&P Global sees Pakistan inflation easing significantly

June 31, 2024 (MLN): S&P Global Ratings has projected Pakistan’s inflation to fall significantly over the next three years. However, it expects price gains to remain above the central bank's 5-7% target.

While affirming Pakistan's rating at 'CCC+', the rating agency said it expects inflation to decrease to 12.7% in the fiscal year 2024-25, down from last year's 23.4%.

Additionally, it anticipates inflation will ease to 9% for both FY26 and FY27.

To note, inflation averaged 29.2% in FY23 and 23.4% in FY24, which ended on June 30.

The government successfully completed the Stand-By-Arrangement (SBA) with the IMF in April 2024. Disbursements under the SBA, which began in July 2023, totaled approximately $3.0 billion.

The IMF disbursement, in addition to new deposits from bilateral partners, has helped to rebuild Pakistan's liquid foreign exchange reserves from critical lows early last year.

Pakistan and the IMF have since reached a new Staff Level Agreement (SLA) on a 37-month Extended Fund Facility (EFF) announced on July 12, 2024.

The financial support under the EFF will be $7bn, which is currently subject to approval of the IMF board.

The performance requirements of this program are a continuation and extension of those set in the SBA.

Meeting the EFF conditions will be critical for Pakistan to receive the disbursements in the coming quarters, the rating agency noted.

Persisting inflationary pressures, coupled with modest economic activity, continue to complicate the implementation of measures to consolidate the government's wide fiscal deficit.

Inflation averaged 23.4% for fiscal year 2024, albeit lower than 29.2% in the previous fiscal year. The fiscal consolidation efforts of the government will be eclipsed by sustained high inflation till it recedes substantially, it added.

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