World Economy

Pakistan’s Economy Goes From Bad to Worse

Pakistan’s Economy Goes From Bad to WorsePakistan’s Economy Goes From Bad to Worse

Pakistan’s outgoing government expects the economy will grow at the fastest pace in more than a decade in the coming fiscal year, but economists are doubtful.

Standard Chartered Plc, Elixir Securities Pakistan Pvt. and BMA Capital Management Ltd. are among those that have downgraded growth forecasts, betting on a slowdown for the first time in six years, Bloomberg reported.

Growth in South Asia’s second-largest economy is set to ease to 5.2% in the year starting July, according to the average of six economists surveyed by Bloomberg. That compares with the government’s estimate of 6.2%, and is slower than the 5.8% pace a year earlier.

The projected slowdown comes as the government scales back plans for spending on roads and infrastructure to meet fiscal targets—key to winning financial support from the International Monetary Fund.

“Pakistan’s economy can’t grow faster anymore with the external imbalances,” said Hamad Aslam, research director at Elixir Securities Pakistan Pvt. in Karachi. There is also “increased conviction on Pakistan entering an IMF program later this year that will focus on controlling the deficit over growth.”

The economy has gone from bad to worse before elections. The nation’s dollar reserves have dropped at the fastest pace in Asia and its current-account deficit widened 50% this year. Authorities have also devalued the currency twice since December.

There are risks to consumer and investor sentiment from the growing current account gap, Bilal Khan, a senior economist at Standard Chartered, wrote in a report in March. Tighter monetary and fiscal policy and a weaker rupee are needed to narrow that gap.

“Policy makers have been able to avoid such policy steps so far due to relatively easy financing from the capital markets,” wrote Khan. “This may face challenges over the course of 2018.”

The benchmark KSE100 Index has dropped 6% since its peak in April as economic pressures build up ahead of elections. The stock market was the worst performer globally last year, according to 95 indexes tracked by Bloomberg.

In the budget announced last month, the government slashed development spending by 20% to 800 billion rupees ($6.92 billion). Fixed investment demand by the private sector dropped 6% to 148 billion rupees in the eight months ended February, according to government data.

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