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ISLAMABAD: With fiscal deficit of Rs951 billion for the first five months of the current fiscal year (July-November 2022) against Rs822 billion for the same period a year before, the Finance Ministry has identified external account pressure, as well as, inflation and Omicron virus as major risks for the economy.

The Finance Ministry’s monthly, “Economic Update and Outlook” for January 2022 released on Thursday noted that Pakistan’s economy continues to show healthy value-added creation but a number of risk factors remain present at the horizon.

Omicron variant of the Covid-19 disease has been identified as first risk by the ministry because experience in other countries shows that this variant is far more infectious than previous variants. On the other hand, its capacity to cause severe illness also looks to be impaired significantly. It is hoped that the SARS-CoV-2 virus that caused the Covid-19 pandemic may gradually converge to other known milder respiratory diseases that can be managed without causing too much damage to peoples’ personal health and to their economic welfare.

The second risk remains the stress on the external balance. Although current account deficit remained high the baseline scenario remains that the excess of imports over exports will gradually ease in the coming months. This expected tendency is enforced by government measures designed to stimulate exports and moderate import demand. The monetary policy decisions are also supportive in this respect.

Monthly ‘Economic Update and Outlook’: Economic recovery confronted with inflation, external pressure: MoF

Third, inflation is high and year-on-year inflation is expected to remain in double digits in the coming month. In this regard it should be noted that year-on-year increase in the CPI index is to a large extent a backward-looking indicator. It is not only determined by current price movements, but also by what happened 12 months ago, when international commodity prices were at the lower areas of their current price cycles, whereas now they are at the upper levels of these cycles. Forward looking, what matters most is monitoring future month-on-month price movements. Containing these price dynamics is the most relevant issue because they will determine further developments in the consumer’s cost of living.

The government measures, accompanied by the support of monetary policy, are directed to protect consumer’s purchasing power in the future. If these future month-on-month price movements can be stabilised, the year-on-year inflation will automatically fall back to levels that are suited for supporting Pakistan’s economic development. In that sense the current surge of the year-on-year inflation rate is a temporary phenomenon.

The fiscal deficit for the five months (July-November 2022) stood at Rs951 billion against Rs822 billion in the same period of last year. In terms of GDP, the fiscal deficit has been contained at 1.5 percent, the same level as in the comparable period of last year. The primary balance posted a deficit of Rs36 billion (0.1 percent of GDP) during against the surplus of Rs216 billion (0.4 percent of GDP) for the same period of last year. The net provisional tax collection by Federal Board of Revenue (FBR) increased by 32.5 percent to reach Rs2919.7 billion during the first half of 2022 against Rs2204.1 billion in the same period of last year, the ministry added. Pakistan’s inflation rate is still under pressure like other countries due to rise in international commodity prices as wells as economic agents’ expectations.

Non-Tax Revenue (Federal) during the first five months of the current fiscal year was down by 22 percent to Rs519 billion as opposed to Rs666 for the same period of last fiscal year and PSDP authorization was Rs434.6, 45 percent up over Rs299.7 for the same period a year before. Agriculture Credit (provisional) was Rs641 billion during the first six month of the current fiscal year, 3.9 percent up over Rs617 billion for the same period a year before and credit to private sector (flows) was Rs772.8 (1st July to 07th January 2022) as opposed to Rs215.5 (1st July to 8th January 2022.

The Current Account posted a deficit of $ 9.1 billion (5.7 percent of GDP) for July-December 2022 due to constantly growing import volume of energy and non-energy commodities. Moreover, rising trend in the global commodities prices especially oil, COVID-19 vaccines, food and metals, built pressure on import bill. Exports on grew by 29 percent during the same period and reached $ 15.2 billion, while Imports grew by 56.9 percent and reached $ 36.4 billion. In July-December FDI reached $ 1056.6 million against $ 879.7 million for the same period of last year increased by 20.1 percent while foreign Private Portfolio Investment has registered a net outflow of $ 307.2 million during July-December 2022. In October 2021, an outflow of $ 1040 million was recorded due to the repayment of Sukuk Bond.

The inputs availability for agriculture will remain satisfactory for Rabi 2021-22 crops and the mechanization and credit disbursement to agriculture show an increasing trend in FY2022, thus it is expected that in the absence of any adverse climate shock, the agriculture sector will perform better.

The LSM for November 2021 remained better than expected. In December 2021, the expectation is that LSM will show strong growth as compared to its level attained in November, according to the Finance Ministry.

Copyright Business Recorder, 2022

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