KARACHI: The economic outlook of the country has deteriorated significantly owing to the floods and political bickering, experts said.
Real GDP growth is expected to slow from 6.0 percent in FY22 to around 2.1 percent in FY23, as a result of high-base effects, flood-related damages and disruptions, a tight monetary stance, high inflation, and a less conducive global environment, they added.
“Events which will likely shape market direction in the year ahead include re-entry into the IMF fold; subsequent support from multilaterals and bi-laterals and Elections 2023”, AKD Securities’ research report said.
With regards to the former, delays in the 9th review will only aggravate uncertainty where parallels with Asad Umer’s tenure (similar delay in IMF re-start) makes for an uneasy reading - market fell from 42,000 in August 2018 to 36,800 during tenure, with further decline till entry into IMF, the report said. On the latter, announcement of elections may potentially lead to a relief rally. That said, any subsequent government needs to come with a heavy mandate in order to carry out economic reforms.
Pakistan it seems is caught in the midst of a perfect storm of adversities with spiraling inflation, falling reserves and external vulnerabilities. Politics appears to be a nightmare the country is unable to wake up from while the recent floods appear to have been plagiarized right from Moses’ biblical story, the report said.
Pakistan’s external position has again depicted vulnerability where despite a relatively controlled current account deficit (CAD) under the new regime ($3.1 billion in five months of FY23 versus $7.2 billion in 5MFY22), $23 billion in debt maturity in FY23 amid dwindling forex reserves ($5.8 billion as December 29, 2022) has rung alarm bells.
“With reserve build-up unlikely to happen (matching or close to matching inflow and outflow forex even as per SBP) in FY23, we believe weakness in the PkR is a theme likely to continue into the new year,” the report said. At the same time, GDP growth in FY23 is expected to slow to 2.1 percent, driven by high base effects, flood related damages and disruptions, high inflation and less conducive global environment, it added.
“With average five months of FY23 headline CPI at 25.14 percent and full year expected at 24.9 percent, core inflation (trimmed) in November 2022 at 19.8 percent (Urban) and 25.4 percent (Rural), and the urgent need to get IMF on board, we foresee further rate hikes in the days ahead. In this regard, our economist expects the policy rate to settle at 18 percent with no easing expected in CY23. That said, from second half of CY22, we do foresee inflationary pressures easing off, primarily due to high base effect.”
“Given the current precarious forex situation and the entailing unofficial import restrictions, we believe cyclicals should most certainly be avoided”, the report said.
Copyright Business Recorder, 2023
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