Key Takeaways:
- Fitch Business Monitor International highlights political instability in Pakistan as a threat to economic recovery.
- Urban protests are disrupting economic activities in Pakistan.
- Pakistan’s government is expected to continue implementing IMF reforms, projecting 3.2% economic growth in 2024/25.
- Policy rate might reach 16% this fiscal year, and the exchange rate is expected to stabilize.
- Potential natural disasters could further jeopardize the fragile economy.
Economic Impact of Political Turmoil
Fitch Business Monitor International’s recent report raises alarms over the impact of political instability in Pakistan on the nation’s economic stability. The ongoing urban protests are significantly hindering economic activities, slowing down the country’s recovery process.
The exchange rate has shown more stability than anticipated, with the dollar expected to reach Rs 290 by year-end and Rs 310 by 2025.
Political Climate and Government Outlook
The report notes that the political environment remains highly unstable, particularly with the founder of Pakistan Tehreek-e-Insaaf (PTI) likely to stay imprisoned despite numerous legal appeals. It suggests that the current coalition government will likely maintain control for the next 18 months, with no immediate plans for elections.
Potential Shift to Technocratic Administration
Fitch also explores the possibility of a technocratic administration taking over if there is a change in government. This would mean continued implementation of reforms mandated by the International Monetary Fund (IMF), potentially driving the economy to a 3.2% growth rate in the fiscal year 2024/25.
Economic Projections
The report forecasts that the policy rate could rise to 16% this fiscal year, dropping to 14% the following year. The exchange rate has shown more stability than anticipated, with the dollar expected to reach Rs 290 by year-end and Rs 310 by 2025. Despite the challenges in meeting budget targets under the IMF program, the fiscal deficit is expected to narrow from 7.4% to 6.7%.
Risks of Natural Disasters
Fitch warns that another flood or natural disaster could significantly threaten Pakistan’s already fragile economy, compounding existing challenges and further delaying recovery.
