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Pakistan to witness economic contraction in FY23: Ismail Iqbal Securities

  • Brokerage house report projects industrial growth to come at a negative 4% in FY23
Published January 3, 2023

Facing the consequences of flood devastation, high inflation and policy measures, Pakistan’s economy is expected to witness economic contraction this fiscal year, said a brokerage house.

“Pakistan is set to witness negative GDP growth, which would be only the third such in the history of the country i.e. in 1952 and 2020,” said Ismail Iqbal Securities Limited (IISL) in its report titled ‘Pakistan Outlook 2023 No Easy Way Out’ released earlier this week.

“We expect GDP growth at a negative 1% in FY23 (Govt target 5%), which would be on the back of a broad-based slowdown across all sectors,” it said.

The report said that the slowdown is a culmination of cataclysmic floods, high inflation, and policy choices i.e. higher interest rates, and import controls.

As per the report, industrial growth is expected to come at a negative 4% in FY23, as manufacturing units are shutting down operations amid low demand and lack of raw material availability.

‘Temporary measure’: Another Pakistani textile firm cuts production by up to 50%

“In FY23, LSM growth is expected to contract by 8% as compared to 12% growth in FY22,” it said.

Meanwhile, the services sector is also expected to remain muted amid high inflation, lower imports, and fall in agricultural output.

On the agricultural sector, important crops barring maize are expected to witness a decline as floods inundated 8.3 million acres of land.

“Cotton and rice have been hit the hardest. Wheat production is also expected to drop due to floods and low DAP application amid higher prices,” said the report.

On the other hand, despite the major challenges, the brokerage house believes that Pakistan is unlikely to default, given the International Monetary Fund (IMF) programme and other inflows materialise.

“We think Pakistan is less likely to default due to three key factors; a) less reliance on external borrowing b) lower dependency on Eurobonds and c) manageable external financing gap of FY23,” said the report.

The brokerage house said Pakistan has lower external debt to GDP of 31% compared to countries which have defaulted (avg external debt to GDP of 59%).

“We have estimated FY23 financing gap of $5.3 billion. We have mainly assumed that Pakistan will remain committed to the International Monetary Fund (IMF) programme, all multilateral flows apart from conditional RISE II and PACE loan will materialise, and bilateral deposits will be rolled over,” it said.

The report was of the view that only $3.3 billion loans pertaining to China will be rolled over.

Import restrictions: Pakistan’s industrial pumps manufacturer temporarily shuts operations

“Based on our assumptions, we estimate inflows of $25.4 billion against the requirement of $30.6 billion (USD 23bn debt repayment + USD 7.6bn CAD), thus the financing gap comes at $5.3bn.

“In our view, Pakistan is likely to finance this gap through a $3-billion deposit from Saudi Arabia, $600 million from additional Saudi oil facility and $1.45 billion Chinese swap facility,” it said.

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TimeToMovveOn Jan 03, 2023 09:34pm
How do you contract from zero!
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Yusuf agha Jan 04, 2023 11:41pm
These analysts like Iqbal securities and topline economic analysis is total fantasy and amateur in extreme Fy23 will be inspite of devastating floods be highest recorded exports highest recorded fdi in any fiscal year current account surplus compared to pti fy22 Minus negative usd17.5 billion usd/-pkr will be around rs200 by 30th june 2023 pakistan balance of payments will be structured such that we will hv permanent current account surplus from fiscal year fy23 Pakistan will add 10 to 15000 mw renewable energy including cepc hydel projects like karak in 2023 bring electricity down to rs9 to rs10 per unit may God spare of these amateur analysts like topline and technocrats
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