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ISLAMABAD: Overall, the fiscal deficit has increased to 1.5 percent of GDP (Rs1,266 billion) during July-October fiscal year 2023 compared to 0.9 percent of GDP (Rs587 billion) for the same period a year before on the back of an increase in the current expenditure on account of debt servicing.

According to the monthly economic outlook and update for December 2022 released by the Finance Ministry, on Friday, the primary deficit posted a surplus of Rs136 billion (0.2 per cent of GDP) against the surplus of Rs206 billion (0.3 per cent of GDP) last year. Higher current expenditure during the first four months of the ongoing fiscal year on the back of higher mark-up payments led to an increase in the fiscal deficit. Additional spending due to flood-related activities may put further pressure on expenditure.

Total expenditure during July-October 2023 increased by 26.1 per cent to Rs2,737 billion as opposed to Rs2,171 billion for the same period a year before. Public sector development programme (PSDP) spending during July-October 2023 was Rs98 billion against Rs207 billion for the same period before.

The Federal Board of Revenue’s tax collection grew by 15.9 per cent to Rs2,688 billion during July-November 2022-23 from Rs2,319 billion for the same period of last year.

Pakistan's GDP growth projected to remain below 3–4% in FY23, says SBP

Foreign direct investment (FDI) declined to $ 430.1 million during July-November 2022-2023 from $884.9 million for the same period of last fiscal year, reflecting a dip of 51.4 per cent.

Standing water in agriculture sector due to floods may create problem in achieving the wheat sowing target whereas demand compression policies to fix the imbalances and tame down inflation along with damages incurred by flood has muted the production of large scale manufacturing (LSM) sector which declined by negative 2.9 percent in October 2022-2023 from 7.6 per cent for the same month a year before.

Workers’ remittances in July-November 2022-2023, decline to $12.0 billion from $13.3 billion last year), showing a decrease by 9.6 per cent. exports decreased by two per cent to $12.1 billion from $12.3 billion and imports 16.2 per cent to $ 24.9 billion from $29.7 billion.

As per the economic outlook and update, as in many other countries, Pakistan’s economic activity remains currently below potential, implying a negative output gap. At the same time, again as in many other countries, inflation remains substantially above targets.

Furthermore, as is also the case in several other emerging economies, the global energy crises, which has pushed up global commodity prices, also puts downward pressure on international official reserves. The economic growth is likely to remain below the fiscal year 2023 the budgeted target due to the devastation created by the floods.

This combination of low growth, high inflation and low levels of official reserves is particularly challenging for policymakers. In the short run, demand management policies by the Central Bank and government are designed to fight inflation and protect official reserves and protect inclusive growth.

Copyright Business Recorder, 2022

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