MOODY’S Investors Service expects Pakistan’s economy to grow by a modest 1.5pc in FY2021, much higher than the World Bank’s projection of 0.5pc but lower than the government’s target of 2.1pc and the State Bank’s estimates of 1.5pc to 2.5pc. Unlike the World Bank that recently predicted the country’s growth would remain lacklustre even over the next two fiscal years at just 1.3pc, the research arm of Moody’s Credit Rating Agency sees the economy expanding to 4.4pc in FY2022. The wide divergence in growth projections for the present year is not surprising as these are based mainly on different sets of data and policies, short- to medium-term trends, global economic drifts and other variables. Yet a reading of the texts accompanying the differing forecasts underlines the challenge to the subdued recovery from the Covid-19 shock: resurgence of the virus. Even though short-term macroeconomic trends are showing improvements over the last year when the economy contracted by 0.4pc for the first time in 68 years, Moody’s expects economic activities to remain below pre-Covid-19 levels for some time and vulnerable to successive waves of infection.
The agency says the perceived risks to Pakistan’s economy are lower than for similarly rated peers, as it is a relatively closed economy with lower dependence on exports and private capital flows, besides limited trade and supply chain linkages which reduce its exposure to weaker global demand. But this ‘advantage’ will also prove to be a major snag even after the world recovers from the pandemic. The slow economic revival may hurt government finances, as is reflected by the FBR missing its target for the first half of FY2021, with Moody’s anticipating the budget deficit at 8pc of GDP compared to the target of 7pc. The agency acknowledges that different initiatives and fiscal stimulus packages given by the government and the central bank helped put the macroeconomy back on the growth track but did not fully offset the pandemic’s impact on the economy. That means private credit growth will reach only a modest 5pc to 7pc, with banks facing the prospect of rising defaults from companies and households because of economic hardship amid the pandemic when repayment of rescheduled loans becomes due in the next few months. In other words, it isn’t time for the government to declare victory; rather, it is time to tweak policies and undertake structural reforms to help the economy get back on its feet on a sustainable basis.
Published in Dawn, January 15th, 2021