We forecast real GDP growth to come in at -.- in FY----/-- and -.- in FY----/--, helped by cheaper energy prices and an improved security situation. Pakistan s chronically low savings rate is finally be- ginning to increase, which will provide support for sustainable invest- ment over the coming years. ...A continued increase in Pakistan s savings rate will be required in order for the economy to maintain real GDP growth above -.- . Looking at the breakdown of the recent increase in the savings rate, falling government dissavings, increased remittances from overseas, and an improvement in the trade balance thanks to lower oil import costs, have all been positive contributors to the increase in the country s savings rate. With oil prices continuing their decline and the government broadly sticking to its IMF- led fiscal austerity measures, the country s overall savings rate will continue to face upside pressure, supporting investment and real GDP growth. ...Looking at the breakdown of the recent increase in the savings rate, falling government dissavings, increased remittances from overseas, and an improvement in the trade balance thanks to lower oil import costs, have all been positive contributors to the increase in the country s savings rate. With oil prices continuing their decline and the government broadly sticking to its IMF- led fiscal austerity measures, the country s overall savings rate will continue to face upside pressure, supporting investment and real GDP growth.
...A sharp drop in terrorist activity in ---- is beginning to have positive effects on the Pakistani economy, following Islamabad s aggressive approach against terrorists based in the North Waziristan border region that were stepped up following the Peshawar military school attacks in December ----. While significant challenges remain, a promising change in tack by the establishment may be in the offing, with the potential to provide more medium-term stability. ...The inflation cycle in Pakistan has likely turned and we expect the State Bank of Pakistan to begin hiking rates in mid-to-late ----. That said, continued low oil prices will prevent the need for the central bank to hike aggressively, and we are forecasting just -- basis points of hikes in the benchmark rate this year from the current multi-year low of -.-- . The decline in crude oil prices is having a dramatic positive impact on Pakistan s trade account. ...We continue to see the fiscal deficit narrowing over the coming years to -.- of GDP in FY----/-- and -.- of GDP in FY----/--. Pakistan is winning international recognition for the development of its Islamic financial sector, and we continue to expect Shariah- compliant banking to grow in prominence over the coming years with the help of the authorities push to grow the sector.
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