The economy is set to improve.

             Pakistan's economy has seen a severe downturn due to the boom-bust cycle and is expected to recover, with a significantly lower predicted need for foreign finance for the current fiscal year 2023 of only $32 billion.

 

As a result, the current account deficit (CAD), which is generally expected to be between $10 and $15 billion for FY23, is expected to decline significantly to $8.7 billion, and the key policy rate of the central bank has peaked at its present level of 15%.

 

In a thorough assessment of Pakistan's economy's prognosis released on Monday, Topline Securities stated that the developments in the works are exhibiting "marks of economic stability."

 

The benchmark KSE-100 index is expected to increase by 25% to 52,000 points over the remaining 11 months (Aug.–Jun.) of the current fiscal year 2023, signaling that it is time to re-enter the Pakistan Stock Exchange (PSX), according to the report.

 

However, compared to the government's aim of 5% for FY23, it predicted that economic growth would decrease to 3.8%.

The prognosis for the current account has been greatly improved by tightening fiscal policy (removal of subsidies and new taxes), monetary policy (now higher interest rate), lowering global commodity prices, and the market-determined rupee-dollar exchange rate.

 

As opposed to $17.4 billion in FY22 (4.5% of GDP), "we project that the current account deficit (CAD) will clock in at $8.7 billion (2.3% of GDP) in FY23."

 

This is less below the market consensus of $11 to $15 billion and the most current estimate of $10 billion from the State Bank of Pakistan (SBP). Additionally, it added that this compares favorably to Pakistan's previous 5-year average CAD of $11 billion.

 

On the back of an anticipated decline in oil prices on global markets, the current account deficit may be drastically reduced. Accordingly, a brokerage institution other day anticipated that Pakistan's energy import bill will drop by $2–2.5 billion in FY23.

 

Second, during the year, the import of Covid-19 vaccinations may decline dramatically by $2.5–3 billion.

 

Thirdly, the TERF programme, a one-time subsidized loan programme for the import of equipment and plants for industrialization, has come to an end. As a result, these imports would decrease by $2–2.5 billion in a given year.

 

Additionally, it was predicted that the steps taken by the government and central bank to reduce imports, such as the imposition of new taxes and an increase in the rate of existing taxes, would reduce imports by an extra $2.5 to $3 billion in FY23.

 

As predicted by Topline Securities, imports (as reported by SBP) will total $62 billion in FY23 as opposed to $72 billion in FY22, driving the improvement in CAD in FY23.

 

A decrease in the services deficit, which is anticipated to fall by 25% to $3.9 billion in FY23 from $5.2 billion in FY22, would also help to support a decreased CAD, the statement continued.

 

However, exports are probably going to slow down to $30 billion and worker remittances are probably going to be the same in FY23 at $32 billion.

 

The research firm's downward revision to the CAD prediction has significantly reduced the amount of foreign funding needed for the current fiscal year 2023 to just $32.2 billion.

 

It was discovered that the administration had previously predicted that it would require $36-41 billion in foreign financing for the entire year (FY23).

 

According to Topline, "Pakistan's total funding needs for FY23 are predicted at $32.2 billion, which includes $23.5 billion in debt repayment and $8.7 billion in CAD estimates."

 

"We anticipate available funding of $33.8 billion (SBP expects $35.7 billion), and we believe Pakistan will be able to meet the financing needs for FY23."

 

Out of this $33.8 billion, the IMF will lend the country an extra $4 billion, and the remaining $1.7 billion will come from the portfolio and foreign direct investment (FDI) inflows. $28 billion is expected to be borrowed from multilateral institutions, bilateral agreements, and rollovers of loans from friendly nations.

 

This means that, as opposed to $8.4 billion as of July 29, 2022, we anticipate SBP liquid foreign exchange reserves to reach $11.5 billion by June 2023.

 

Topline predicts that the inflation rate in FY23 will be close to SBP's updated projection of 18%–20% as a result of changes to energy tariffs, currency depreciation, and rising food prices. "We anticipate that year-over-year CPI will peak in August 2022 (now between 25% and 28%) and begin to decline from September 2022 and beyond."

 

The Pakistani rupee (PKR), one of the worst-performing currencies among regional developing and frontier market peers in 2022 against the US dollar, will get much-needed stability from declining imports, the probable restart of the IMF loan programme, and other inflows. "We now expect the Pakistani rupee to stay in the Rs200-240 range in FY23, where on an average basis we estimate the rupee to settle at roughly Rs220 in FY23 against the average US dollar exchange of Rs178 in FY22."