KARACHI – American credit rating agency Fitch has predicted further drop in Pakistan’s inflation rate and Interest Costs for Fiscal Year 2025.
In its recent report, Fitch expressed optimism after stern measures introduced by Pakistani government in this year’s budget. The agency predicts that inflation will remain at 12percent as the country of over 240 million takes tough decisions to avoid default.
Fitch expects Pakistan’s debt to decline to 68pc of GDP by the end of FY24 due to high inflation and deflator effects, which will help offset rising domestic interest costs. It also shared drop in costs driven by economic growth and primary surpluses that will gradually cut government debt.
Furthermore, the rating agency projects policy rate for FY25 to be 16pc. Fitch believes that Pakistan’s ambitious FY25 budget improves the country’s chances of securing a bailout agreement with the International Monetary Fund (IMF).
It mentioned that there are doubts about the government meeting its fiscal targets, and said the reduction in the fiscal deficit should alleviate external pressures, although it may come at the cost of slower growth than anticipated by the government.
The agency expects the growth rate to remain at 3pc in FY25, despite some improvements in short-term economic indicators, and further noted that Pakistan’s external position has been improving since February’s election, with the current account deficit on track to narrow to 0.3% of GDP (USD1 billion) in FY24 from 1.0% in FY23.
The subdued domestic demand has led to a decrease in imports, while exchange rate reforms have attracted remittances back to the official banking system.
