Except translation, this story has not been edited by achinews staff and is published from a syndicated feed.
- A rating agency predicts that inflation will remain at 12% in Pakistan in FY25.
- Fitch says it looks like government debt will fall to 68% of GDP by the end of Year 24.
- Agency expressing doubts whether the government’s fiscal targets will be met.
Fitch Ratings has said that it expects inflation and interest costs to decline in Pakistan during the upcoming fiscal year 2024-25, in light of the recently presented federal budget FY25.
The rating company has predicted that inflation will remain at 12% in the country as it struggles to avoid an economic crisis.
Last week, the State Bank of Pakistan (SBP) cut its key interest rate by 150 basis points in a widely expected move, marking its first rate cut in nearly four years in its effort to boost growth amid a sharp decline in retail inflation.
The decision to cut the key rate to 20.5% came a week after data showed inflation had slowed to a 30-month low of 11.8% in May.
“Government debt looks set to fall to 68% of GDP by FYE24 due to high inflation and the effects of deflators, offsetting rising domestic interest costs. We expect inflation and interest costs to decline in tandem, with economic growth and primary surpluses driving government debt / GDP steadily lower,” the rating agency added.
It also forecast the FY25 policy rate at 16%.
Fitch Ratings further said the “ambitious FY25 budget” has strengthened Pakistan’s prospects of striking a bailout deal with the International Monetary Fund (IMF).
He expressed doubts whether the government’s fiscal targets will be hit but he predicted a fall in the fiscal deficit even if that budget is only partially implemented.
“This should reduce external pressure, albeit at a cost to growth,” he said, adding that tight policy settings could reduce growth more than the government expects.
The rating agency said the growth rate is expected to remain at 3% in FY25, despite some improvements in short-term indicators of economic activity.
According to Fitch, Pakistan’s external situation has continued to improve since the February election.
He said the current account deficit is on track to narrow to 0.3% of GDP (just USD1 billion) in FY24, from 1.0% in FY23.
Furthermore, subdued domestic demand has compressed imports, while exchange rate reforms have attracted remittance inflows back into the official banking system.
The rating agency also expressed optimism about the economic situation supported by strong agricultural exports.
Although the country’s gross reserves, including gold, are now USD15.1 billion, over two months of external payments, up from USD9.6 billion in FYE23, Fitch said.
(Except translation, this story has not been edited by achinews staff and is published from a syndicated feed.)
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