Timely exit

Pakistan is no longer on the grey list of the FATF. With political uncertainty, devastating floods, high inflation, ballooning public debt, and weakening of the Pakistani rupee dragging down the country’s economic growth, this is long overdue good news.

The white listing will strengthen Pakistan’s position, especially with regards to the soundness of our financial systems, and help regain confidence of international investors. Moreover, this should also help strengthen Pakistan’s case of upgrading by international credit rating agencies.

Other than that nothing is noteworthy on the economic front. Ishaq Dar, who made quite an entry with his all jumping, stomping and chest thumping, hasn’t made an impression so far other than securing more debt with latest being $1.5 billion from Asian Development Bank (ADB). Dar’s aggressive approach towards the exchange rate and talks of bringing the dollar down to below Rs200 is not there anymore. This suggests that the economic crisis is deepening.

The economic outlook for Pakistan in the current fiscal year has become uncertain and will likely remain below the target. Macroeconomic imbalances may however ease with the expected slowdown in economic growth.

Forex reserves held by the State Bank of Pakistan (SBP) currently stand at $7.43 billion, of which $2.3 billion was credited by China, $3 billion deposited by Saudi Arabia and $1.2 billion came from the IMF. Creditors are not ready to support Pakistan and the prospect of a default still looms large. The government needs to pay $1 billion on bonds maturing in December. It has interest payments worth around $600 million for the 2022-23 fiscal year, but the next full bond redemption is not until April 2024.

Data from State Bank showed Pakistan’s public debt had increased to Rs49.5 trillion at the end of August 2022, a nearly 25 percent jump from Rs39.7 trillion from end of August 2021.

The depreciation of the rupee against the US dollar and increased government’s borrowing to plug the deficit has contributed to the ballooning public debt. According to the World Bank, the country financed almost 60 percent of the fiscal deficit through domestic banks. Public and publicly guaranteed debt stood at 78 percent to GDP and expected to fall to 71.9 percent in FY2024.

Pakistan is projected to slow to 2 percent in FY2023 as the flood situation has deteriorated its economic outlook. The country’s economy was expected to recover to 3.2 percent in FY2024 aided by a rebound in agricultural production, reconstruction efforts, projected lower global inflationary pressures, and improved confidence. owever, flooding is expected to impose a lingering drag on output in the medium term through the loss of livelihoods and human capital, disruption to crop cycles, infrastructure damage, and possible financial sector impacts.

Adding to all these challenges is the public’s disagreement with the Election Commission of Pakistan (ECP) which found Imran Khan guilty of corrupt practices and disqualified him from being a member of parliament. Pakistan Tehreek-e-Insaf has called on its supporters to take to the streets.

In September, the ADB cut Pakistan economy projections for FY2023 GDP growth to 3.5 percent next year, down from the 4.5 percent forecast in April, as the ongoing stabilisation efforts to address significant fiscal and external imbalances are likely to curb economic activity.

Fitch Solutions’ Pakistan economic forecast expected the country’s real GDP growth to grow by a mere 0.2 percent in the current fiscal year, a significant deceleration from 6 per cent growth in the previous year. Trading Economics has projected Pakistan’s GDP to grow at an annual rate of 4 percent by the end of 2022.