Fitch Ratings, in its special report “APAC remittances and the coronavirusshock”, has stated that remittances are set to decline in 2020 despite arecovery in recent months, and forecasts Pakistan current account deficitto widen to 1.7 percent of GDP in the fiscal year 2021, in part asremittances fall and offset gains from lower oil prices.

Pakistan has reduced its current account deficit, from a high of 6.1percent of GDP in the fiscal year ending June 2018 (FY18) to 1.1 percent inthe fiscal year 2020. It has also modestly rebuilt foreign-exchangereserves, in large part from a shift to a more market-determined exchangerate.

High debt-to-GDP ratios in Pakistan constrain the ability to respond topossible rising social-spending needs, said Fitch Ratings.

Fitch forecasts the deficit to widen to 1.7 percent of GDP in the fiscalyear 2021, in part as remittances fall and offset gains from lower oilprices. Financing from the IMF through an ongoing $6 billion program and$1.4 billion Rapid Financing Instrument (RFI) facility, along with othermultilateral and bilateral support and participation in the G20s DebtService Suspension Initiative, are a buffer against the fall in remittances.

For countries with fragile external finances, such as Pakistan and SriLanka, the expected shock to remittances could exacerbate existingchallenges, said the report.

High debt-to-GDP ratios in Sri Lanka (86.8 percent), Pakistan (86.1percent), and India (71 percent) constrain the ability of these countriesto respond to possible rising social-spending needs.