ISLAMABAD: Pakistan is faced with challenging economic environment subsequent to damages caused by the floods, especially to the agriculture sector, whose impact would be transferred to the other sectors of the economy, thereby changing the overall economic outlook.
This was noted in the monthly Economic Update and Outlook for October 2022 released by the Finance Ministry on Sunday.
Growth prospects have weakened, along with contained economic activities and low demand to impact resource mobilization. Thus, fiscal year 2023 is moving with challenges, mix for stabilization, it added. The Ministry added that higher than-expected inflation and the tight monetary policy stance of SBP are also affecting growth negatively.
Overall economic outlook shows an optimistic picture of the economic performance in the coming months as CPI inflation is declining, rupee has gained stability, and current account balance is on improving trend, it said, adding that catastrophic flood require rehabilitation and massive expenditures which will pose significant challenge for fiscal consolidation.
About the future path of inflation, the exchange rate is of utmost importance for future path of the inflation and noted that supply disruption in view of recent floods have resulted in a shortage of perishable food items which are posing risks of higher inflation.
There is need to enhance the productive capacity and productivity in each sector to substitute imports by domestic production and provide more supply capacity to the foreign markets. A manageable current account deficit was also highlighted for guaranteed financing of the deficit by healthy financial inflows. A major risk factor to the current account, though, relates to the necessary imports to absorb the devastating consequences of the floods. However, downward revision of Pakistan’s main trading partners’ outlook may have a downside risk for exports in coming months.
There has been a decline of 6.3 percent in remittances during the first two months of the current fiscal year to $7.7 billion from $8.2 billion for the same period a year before and foreign direct investment contacted by 47.1 percent to $253.4 million from $479.2 million and total foreign investment by 83.7 percent to $223.1 million from $1.358 billion during the period under review.
Preliminary estimates of important Kharif suggest a decline in the production of sugarcane, rice, maize, and cotton due to floods. According to FCA, the production of sugarcane decreased by 7.9 percent to 81.6 million tonnes from 88.7 million tonnes of last year’s production. Rice production declined by 40.6 percent to 5.5 million tonnes over last year’s production of 9.3 million tonnes. Maize production decreased by 3.0 percent to 9.2 million tonnes compared to 9.5 million tonnes last year.
The cotton production has declined by 24.6 percent to 6.3 million bales as opposed 8.3 million bales during last year. The farm tractors production and its sales declined by 36.2 percent in July-September 2022-23. During July September 2022-23, the agriculture credit disbursement increased by 31.5 percent to Rs 383.8 billion as compared to Rs 291.9 billion during same period last year. During Kharif 2022 (Apr-Sep), urea and DAP off-take was 3,137 thousand tonnes (3.7 percent less than Kharif 2021) and 491 thousand tonnes (44.8 percent less than Kharif 2021).
The fiscal deficit has increased by 45.4 during July-August 2023 Rs.672 billion against the deficit of 0.7 percent of GDP (Rs.462 billion) for the same period of last year. The deficit was recorded 0.9 percent of GDP during the first two month and primary balance posted a deficit of Rs.90 billion (-0.1 percent of GDP) in July-August 2023 against the deficit of Rs 37 billion (-0.1 percent of GDP) for the comparable period of last year. The FBR net tax collection was Rs 1633.9 billion in the first quarter against Rs 1396.4 billion in the comparable period of last year.
Copyright Business Recorder, 2022