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ISLAMABAD: The Ministry of Finance, while admitting slowdown in growth, has warned that geo-political tensions and persistent high domestic inflation may impact domestic economic activities.

The Ministry of Finance in its monthly, “Economic Update and Outlook” released Friday stated that inflationary and external sector pressures are creating macroeconomic imbalances in the economy.

The high inflation accompanying with monetary policy reaction may temporarily reduce growth prospects in the short run. But in the long-run, economic growth and employment are determined by the path of Pakistan’s productive capacity. This requires more productive investments from both foreign and domestic sources.

The outlook noted that among the determining factors of current trends in both international and domestic inflation are supply chain issues and surging international commodity prices. The current cycles of international food and oil prices are different. First, the volatility in these markets is high compared to historical standards. Second, due to geo-political tensions, the increasing trend in prices may remain intact.

High international commodity prices not only keep inflation elevated, they are also a burden on Pakistan’s external account and hence on its foreign exchange reserves.

MoF’s monthly outlook: Domestic, world scenarios may ‘ramify economic recovery’

Strengthening of Pakistan’s overall supply side through increasing its productive potential would allow it to produce more for exports and to discourage import. These prospects would relax the external constraint that has historically weighed on Pakistan’s economy and which has caused regular Balance of Payments crises and an accompanying stop-and-go profile in Pakistan’s economic growth path, it added.

The Monthly Economic Indicator (MEI) remains strong, although some slowdown in growth since February is observed. In the last two months, growth of economic activity seems to fluctuate around 4 percent on a YoY basis. This observation is based on movements in macroeconomic high frequency indicators such as growth in LSM, growth in imports, inflation and the external environment. Economic growth in Pakistan’s main trading partners continues to remain slightly above trend, although some slowdown may be possible surrounding uncertainties due to the recent geo-political tensions and the continued increase in international commodity prices. If these tensions continue or intensify, Pakistan’s growth may be affected as well. At domestic front, the tightening of monetary policy and the increasing inflation may affect domestic growth prospects.

During the first nine months of the current fiscal year, the fiscal deficit stood at four percent of GDP or Rs2,566billion against three percent of GDP (on the basis of revised GDP) or Rs1,652billion last year. It is expected that fiscal deficit may increase further in the coming months.

The primary balance posted a deficit of Rs447.2 billion (-0.7 percent of GDP) as compared to surplus of Rs451.8 billion (0.8 percent of GDP).

During Jul-Mar, fiscal year 2022, the total revenues grew by 17.7 percent to Rs5,874.2 billion against Rs4,992.6 billion in the same period of fiscal year 2021. Within revenues, non-tax collection was reduced by 14.3 percent, while the FBR tax collection increased by 29 percent during the period under review. The provisional net tax collection during Jul-Mar fiscal year 2022 grew by 28.9 percent to stand at Rs4,375.6 billion against Rs3,393.7 billion in the same period of last year.

During the first nine months of the current fiscal year, the FBR exceeded its revenue target by 5.8 percent. Domestic tax collection grew by 28.1 percent during Jul-Mar fiscal year 2022. Within domestic, direct tax grew by 26.7 percent, sale tax by 31.1 percent, the FED by 14.9 percent whereas customs duty increased by 33.7 percent.

On the other hand, total expenditure, grew by 27.0 percent to Rs8,439.8 billion during Jul-Mar fiscal year 2022, against Rs6,644.6 billion in the comparable period of last year. Within total expenditures, the PSDP spending increased by 58 percent to Rs1,032.7 billion in Jul-Mar fiscal year 2022 against Rs653.9 billion in the same period of last year. While current spending increased by 21.2 percent to reach Rs7,378.0 billion as compared to Rs6,085.4 billion last year.

The Current Account posted a deficit of $ 13.2 billion for Jul-Mar fiscal year 2022 as against $275 million last year. The current account deficit widened due to the constantly growing import volume of energy and non-energy commodities, along with a rising trend in the global prices of oil, Covid-19 vaccines, food and metals. Exports on fob grew by 26.6 percent during Jul-Mar FY2022 and reached $ 23.7 billion ($ 18.7 billion last year). Imports on fob grew by 41.3 percent during Jul-Mar FY2022 and reached $ 53.8 billion ($ 38.1 billion last year). Resultantly, the trade deficit (Jul-Mar FY2022) reached $ 30.1 billion as against $ 19.3 billion last year.

The CPI inflation was recorded at 10.8 percent during Jul-Mar compared to 8.3 percent in the same period of last year. The CPI for the March 2022 recorded at 12.7 percent on YoY basis against 9.1 percent in March 2021.

Copyright Business Recorder, 2022


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Tariq May 01, 2022 08:09am
Pakistan is bankrupt. We are moving towards srylanka.
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