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Moody’s predicts Pakistan’s GDP growth to slow in FY19

KARACHI: Pakistan’s GDP growth expected to slow to 4.3 to 4.7% in current and the next fiscal year from 5.8% in FY18 due to policy measures taken to address the external imbalance, Moody’s rating agency has said in a report released on Thursday.

The policymakers have tightened domestic monetary conditions to address the external imbalance, Moody’s stated.

The policymakers have allowed the currency to depreciate by around 30% since the start of December last year.

Moreover, to address the external imbalance, the central bank has fine tune the policy and hike the interest rate by 425 basis points, tightening fiscal policy and imposition of regulatory duties on imports of non-essential goods was initiated.

The rating agency said, due to a sharp depreciation of the rupee, higher electricity and gas tariffs, it expects inflation to increase to an average of 7% over FY19 before moderating to an average of 6.5% in fiscal year 2020.

The report said, due to higher remittance inflows, during the first four months (July-October) of FY2019 will support private consumption.

Due to significant external pressures fueled by wider current account deficit have caused the foreign exchange reserves to slide which are unlikely to be refilled in the near-term unless capital inflows increase considerably, the rating agency said.

The country’s external debt repayments are modest, however, low foreign exchange reserves adequacy could endanger the government’s ability to finance the balance of payments deficit and roll over external debt at affordable costs.

The Moody’s cautioned the government’s narrow revenue base restricts its financial flexibility and weighs on debt affordability since its debt burden has risen in recent years.

The rating agency said, the government’s debt stock at 72% of GDP is higher than the 58% for B-rated sovereigns and it projected the burden to increase further and peak at approximately 76% of GDP by FY20, due to currency depreciation until it gradually declines.

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