Tighter Policies to Weigh On Short-Term Growth in Pakistan: Fitch Solutions

March 13, 2019 (MLN): Fitch Solutions Macro Research, a unit of Fitch Group but an independent research house, has maintained their forecast for Pakistan’s real GDP growth to slow down to 4.4% in FY2018/19 (July-June), down from 5.4% in the previous fiscal year, but slightly above the Bloomberg consensus of 4.0%, due to growing domestic and external headwinds.

According to a recently published research, the economy will likely undergo a period of painful readjustment over the near term as Fitch Solutions expects both monetary and fiscal policy to be tightened to address many of the economic imbalances that have built up in recent years.

These imbalances include rising inflation, a widening fiscal deficit and falling foreign exchange reserves.

Tighter monetary policy and a weak currency are likely to result in a loss in purchasing power among consumers. Meanwhile, austerity measures, rising geopolitical tensions with the neighbor India and slowing global growth will also pose headwinds to Pakistan’s growth outlook over the coming quarters.

However, over the longer term, Fitch Solutions sees growing upside risks to their forecast for growth to come in at 4.1% in FY2019/20.

The increasing likelihood of a deal between Pakistan and the IMF would be a positive signal and could see growth surprise to the upside should further reforms be implemented to help reduce current imbalances and attract more investment.

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