Global economic ratings firm Fitch has raised concerns about Pakistan's current political turmoil and its potential impact on the country's economic stability.
In its latest Pakistan Country Risk Report, Fitch Solution's Business Monitor International highlighted that Pakistan's economic recovery was in a critical state, noting that urban protests have hampered economic activities.
The report emphasises that the political climate in Pakistan remains precarious, with the founder of Pakistan Tehreek-e-Insaaf (PTI) expected to remain imprisoned despite several successful legal appeals.
In this scenario, Fitch foresaw the incumbent coalition government continuing to hold power for at least the next 18 months with no immediate plans for fresh elections.
However, it also outlined the possibility that a technocratic administration may take charge if there is a change in government. This scenario, if implemented, would imply that the government will offer, with one face in charge or the other, continuity in implementing International Monetary Fund (IMF)-mandated reforms to help the economy grow by 3.2% in 2024/25.
The report projected that by the end of the ongoing fiscal year, the State Bank of Pakistan could lower interest rates to 16% and to 14% next year as Pakistan's overheated economy cools amid the IMF-regulated money management programme.
Fitch noted that the exchange rate between the rupee and the US dollar has stabilised beyond expectations, maintaining the Rs278 level consistently for eight months now. However, Fitch predicted that this phase would be shortlived and that the rupee would experience some devaluation between now and the end of the year, by which point a US dollar is expected to cost around Rs290, before slipping further to Rs310 in 2025.
Fitch further believes that Pakistan will find it challenging to achieve the budgetary targets set per the impending IMF programme. While it struggles elsewhere, Pakistan's plan to reduce its fiscal deficit is anticipated to remain on track and lower the deficit from 7.4% to 6.7%.
Additionally, Fitch has warned that another natural disaster, such as a flood or any other external economic shock, could pose a significant threat to Pakistan's already fragile economy.