IMF bailout to negatively impact Pakistan’s growth in the short run
Pakistan’s economic growth will be negatively impacted in the short run due to tighter monetary and fiscal policies as a result of the International Monetary Fund’s bailout package, a leading economic research firm said in a report on Wednesday.
Fitch noted that this was in lower than the forecasts by Bloomberg of 3.3% for the outgoing fiscal year and 3.5% for 2019-20.
“We believe that the bailout package from the International Monetary Fund (IMF) will see tighter monetary and fiscal policies in Pakistan, which will be negative for growth in the near term,” said Fitch Solutions in the report.
“That said, investment into the China-Pakistan Economic Corridor (CPEC) will continue to provide some support to the economy,” it added.
Pakistan reached a $6 billion bailout agreement with the IMF in May to address a balance of payments crisis, following which the central bank raised interest rates by 150bps.
“Given our expectations for continued upside pressure on consumer prices over the coming months, we believe that the consumers’ purchasing power will continue to fall over the coming months, thereby weighing on consumption,” it said.
However, it noted that that some of the effects of price hikes would be partially offset by the “government’s populist measures, such as providing electricity subsidies to consumers who use less than 300 units of electricity per month”.
“While Pakistan and the IMF have agreed on focusing on tax-based measures to manage the fiscal deficit, according to media reports, we believe that the Pakistani government will fall short of its ambitious revenue targets and will likely have to cut spending to meet the primary deficit target of 0.6% of GDP,” it added.