Karachi, October 12, 2018 (PPI-OT): Pakistan Economy – The Road to Consolidation
The recent surge in international oil prices means that upcoming increase in domestic energy prices will be much sharper than our earlier estimates (particularly given IMF’s likely tough stance) – as a result we foresee CPI Headline/Core Inflation to surge to 9.8/10.1% in Feb-19 and average 7.7/9.0% in FY19
The upcoming surge in inflation, continued pressured on BoP and stringent demands from IMF are likely to take PR/DR to 10.5%/11.0% by Jan-19 and settle at 9.5%/10.0% in 2HFY20
REER has remained upwards sticky (despite a depreciating PKR) due to weakness in other global currencies – this is likely to keep PKR under pressure as we now estimate it to close at 142 against the Greenback by the end of FY19 (compared to our earlier forecast of 135)
These contractionary policies would result in slowdown in GDP growth followed by modest recovery; we maintain our FY19 GDP Growth forecast of 4.5% and expect the growth to dip to 4.0% in FY20 before recovering to 5.0%
Higher taxes particularly on imports, reduction in subsidies, development spending cuts associated with IMF loan and slower growth should help curtail fiscal deficit to 4% of GDP and CAD within 1-2% level by FY23.