KARACHI: Pakistan's economy will expand 4.2 percent in current fiscal year helped along by higher public and private spending after a pandemic-hit 2020, Fitch Solutions said on Monday.
"... improving vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation," the agency said in a report.
"Fitch Solutions maintain forecast for the Pakistani economy to record real GDP growth of 4.2 percent in FY2021/22 (July 2021-June 2022), up from 3.9 percent in FY21."
The report said Pakistan is likely to continue with its 'smart-lockdown' strategy to fight forth wave of Covid 19, instead of imposing a nationwide lockdown, and Pakistan’s growth trajectory will not be "severely curtailed".
"We also expect the economy to be buoyed by accommodative monetary and fiscal stances (public spending)," Fitch said. "A more assured economic outlook will bode well for consumption and investments, bolstering economic growth."
The report said private consumption to is expected to grow by 3.6 percent in FY22 compared to 3.4 percent previously.
"While this still represents a slowdown from the 7.4 percent in FY21 due to waning base effects, improving vaccination rates will buoy consumer sentiment, facilitating a recovery in consumer spending."
Fitch revised its forecast for government consumption growth to 4.3 percent in FY22 from 3.5 percent.
"Given the continued economic uncertainty from the pandemic we expect pandemic related spending to remain broadly similar to ensure the economic recovery does not fall off track," it added.
The agency said the government consumption will also be boosted by subsidies to the power sector, to ameliorate the country’s circular debt.
Fitch expects net exports to subtract 1.0 percentage points from headline growth, revised from -0.4 percentage points previously.
This comes as Fitch expects imports to rebound more strongly than exports.
"Additionally, the improving economic outlook will likely see a rebound in consumer spending and increased demand for capital goods."
Pakistan’s export growth expected to come in at 6.0 percent, Fitch said.
"Export growth will be bolstered by robust external demand amid recoveries among Pakistan trading partners such as the US, China and the United Kingdom."
"As these economies continue to normalise activity with the gradual easing of lockdown measures due to higher vaccination rates, the improvement in consumer sentiment in these markets will lead to stronger order flows." Fitch said the risk to the growth outlook of Pakistan is weighted to the downside.
On the domestic front, given the more virulent delta strain in the community, amid a still low percentage of the population that are fully vaccinated, a strong resurgence in Covid-19 infections could weigh heavily on growth.
"On the external front, heightened security threats posed by radical groups such as the Pakistan Taliban Group could lead to social instability and the destruction of infrastructure," the report said.
"This might weigh on the country’s gross fixed capital outlook and exporting capabilities as businesses become hesitant to invest in capacity building infrastructure."