FITCH seems to be more optimistic about Pakistan accelerating its economic growth rate to 3.2pc during this fiscal year from last year’s 2.4pc than most other international agencies. The Pakistan — Country Risk Report, published by BMI, a FitchSolutions company, believes that (the expected) monetary easing, improved agricultural output, a relatively stable exchange rate, and slowing inflation will drive up growth this year. Yet, the Fitch estimate is below the government’s modest growth target of 3.5pc. The report also indicates that the government will miss its ambitious budget targets, as “risks are heavily weighted to the downside”. For example, it has predicted that while the budget deficit will narrow from 7.4pc of GDP in FY24 to 6.7pc, the target of 5.9pc will still be missed. Likewise, the current account deficit will remain small, but widen from 0.8pc of GDP to 1pc due to a larger trade deficit, which will expand from 7.5pc of GDP to 7.7pc because of a jump in oil prices or lower-than-expected grain production.

In spite of a slightly more hopeful outlook, the agency feels that “economic recovery is fragile and another shock would quickly push up the cost of servicing Pakistan’s large government debt burden”. The biggest threat to economic revival stems from continued political instability. That has actually been the main thread of Fitch’s commentary on Pakistan’s economy since the controversial February polls, which have thrown up a minority government supported by partners from the outside. Besides factors like a jump in global oil prices or an extreme climate event, it adds, the fragile political situation could also derail recovery. The recent political developments have also strengthened the impression that the current situation is becoming untenable for the minority PML-N government, despite support from the security establishment. A resolution to the existing deadlock will have to found sooner rather than later. Or we may see the economy slide again — and faster.

Published in Dawn, July 20th, 2024