Fitch Warns Political Turmoil Could Threaten Pakistan’s Economic Stability

Fitch Business Monitor International has raised alarms about the potential impact of Pakistan’s ongoing political turmoil on its economic stability.

In its latest Pakistan Country Risk Report, Fitch pointed out the fragile state of Pakistan’s economic recovery, noting that urban protests have disrupted economic activities.

The report indicates that the political situation remains unstable, with the founder of Pakistan Tehreek-e-Insaaf (PTI) expected to stay imprisoned despite numerous successful legal appeals.

This situation suggests that a coalition government is likely to hold power for the next 18 months, with no immediate plans for new elections.

Fitch also mentioned a possible scenario where a technocratic administration might take over if the government changes. This implies that Pakistan’s government will continue implementing IMF-mandated reforms, potentially driving the economy to grow by 3.2% in 2024/25.

The report forecasted the policy rate could hit 16 percent this fiscal year and 14 percent next year, while the exchange rate has stabilized beyond expectations.

The dollar is predicted to reach Rs 290 by the end of this year and Rs 310 in 2025. Meeting budget targets under the IMF program is seen as challenging, though the fiscal deficit is expected to shrink from 7.4 percent to 6.7 percent.

Additionally, Fitch warned that another flood or natural disaster could pose a serious threat to the already fragile economy.