Fitch says Pakistan GDP to grow at 4.2pc

With some subdued downward risks, Fitch Solutions forecast Pakistan's economic growth at 4.2 per cent against the government's target of 4.8pc in the current fiscal year (FY22) owing to supportive monetary and fiscal conditions and improving vaccination rates.

The report by Fitch Solutions which offers financial information services - noted that net exports would contribute negatively to headline growth as imports would outpace export growth. "Improving vaccination rates will buoy private consumption growth while supportive monetary and fiscal conditions will serve as tailwinds for gross fixed capital formation," it said.

The report said the risk to the growth outlook was 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 Taliban could lead to social instability and the destruction of infrastructure. This might weigh on the country's gross fixed capital outlook and exporting capabilities as businesses become hesitant to invest in capacity building infrastructure. Report notes improving vaccination rates will boost private consumption growth.

The growth forecast accounts for the occasional tightening of Covid-19 restriction measures due to the still elevated number of domestic cases. This comes as Pakistan grapples with its fourth wave of Covid-19 outbreaks. Nevertheless, with the government likely to continue with its "smart-lockdown" strategy instead of imposing a nationwide lockdown, the company did not expect Pakistan's growth trajectory to be severely curtailed.

Fitch Solutions also revised its forecast for private consumption to grow by 3.6pc in FY22 compared to 3.4pc previously. While this still represented a slowdown from the 7.4pc in FY21 due to waning base effects, improving vaccination rates will buoy consumer sentiment, facilitating a recovery in consumer spending, it said.

As of September 12, 22.8pc of the population has received at least one dose of the vaccine with 9.6pc of the population fully vaccinated. Although still far from achieving herd immunity (approximately at least 70pc of the population fully vaccinated), these figures represent about a seven-fold increase since June.

It said the country's consumer confidence rose in July, coming in at 44.1, its highest reading since September 2019 (pre-pandemic levels). As a sign of recovering demand, purchases of major items like passenger vehicle sales have surpassed pre-pandemic levels. Additionally, expectation for still strong remittance growth amid a stronger economic growth outlook in the Gulf Cooperation Council (GCC) economies and the EU, will also support private consumption.