ISLAMABAD: Inflation is expected to remain high in the coming months around 28 to 30 percent consequent to uncertain political and economic environment, pass through of currency depreciation, recent rise in energy prices, and increase in administered prices.

This was stated by Ministry of Finance in its monthly economic update and outlook for the month of February released on Tuesday.

The ministry added that although the State Bank of Pakistan (SBP) has been enacting contractionary monetary policy, but the inflationary expectation would take some time to settle. The federal government, in liaison with provincial governments, is closely monitoring the demand supply gap of essential items and taking necessary measures to stabilise their prices.

The government expects that resumption of economic stabilisation programme will help achieve economic stability leading to exchange rate stabilisation and provide an opportunity to reap the benefit of falling international commodity prices. This will also help contain cost push inflation and provide a cushion to the government to pass through the lower commodity prices to domestic consumers.

IMF revises inflation rate upward for Pakistan

There was a decline of 11 per cent in remittances during July-January 2022-23 to $16 billion as opposed to $18 billion for the same period of last fiscal year, in exports 7.4 per cent to $16.4 billion from $17.7 billion, imports 20.9 per cent to $33.5 billion from $ 42.3 billion, foreign direct investment 44.2 per cent to $683.5 million from $ 1.224 billion during the period under review.

A decline of 67 per cent was recorded in current account deficit to $3.8 billion during July-January 2022-23 from $11.6 billion during the same period a year before. Foreign exchange reserves of SBP stood at $ 3.815 billion during July-January 2022-23 from $16.574 billion in July-January 2021-22 and exchange rate Rs259.99/ dollar as opposed to Rs176.3/ dollar.

On fiscal side FBR revenue after 18 per cent growth during July-December 2022-23 increased to Rs3,966 billion from 3,351 billion for the same period a year before while there was a growth of 26.4 per cent in non-tax revenue to Rs967 billion from Rs765 billion during the period.

Fiscal deficit was recorded at Rs1,683 billion during July-December 2022-23 compared to Rs1,372 billion for the same period a year before and primary balance Rs980 billion as opposed to Rs81 billion. Credit to private sector disbursement declined 46.1 per cent to Rs435 billion in 2022-23 from Rs806.8 billion in 2021-22.

The recent estimates show that wheat sowing for the current Rabi season 2022-23 has achieved 96 per cent of the target, covering an area of 21.94 million acres out of the planned 22.85 million acres. The Kissan Package 2022 is expected to have a positive impact on the agriculture sector’s productivity as during Jul-Jan 2023, the agriculture credit disbursement increased by 28.3 per cent to Rs949.9 billion from Rs740.3 billion during the same period last year.

The global economic outlook also implies the contraction of 3.7 per cent in LSM during the first half of FY2023 (Jul-Dec). On a year on year basis, LSM declined by 3.5 per cent in December 2022, but grew by 12.4 per cent over the previous month.

The automobile industry experienced a significant decline in production and sales during Jul-Jan FY2023 due to import compression strategies and tight auto financing. Car production and sales decreased by 38.6 per cent and 43.1 per cent, respectively, while trucks and buses production and sales decreased by 29.1 per cent and 37.1 per cent, respectively.

The total cement dispatches also declined by 18 per cent, to 25.8 million tons during Jul-Jan 2023, as compared to 31.4 million tons during the same period last year.

However, there was a marginal growth of 1.15 per cent in cement dispatches during January 2023, with 4.0 million tons dispatched as compared to 3.96 million tons in January 2022. As of now, the favourable weather conditions and the uptake of inputs by the farmers are expected to play their positive role in meeting the wheat target of 28.4 million tonnes.

Further, the disbursements made under the Kissan package will have positive impact on the agriculture productivity and overall economic activity. Large Scale Manufacturing (LSM’s) cyclical pattern is positively correlated with the cyclical position of Pakistan’s main trading partners.

Although risks to domestic resource mobilization efforts persist due to economic activity and growth slowdown; however, continuing efforts to boost tax collection would aid in meeting the full year target. Similarly, recently enacted Rs 170 billion additional taxes may support further improving the tax collection.

During the first half of the current fiscal year, interest payments on the government’s debt significantly contribute to the total expenditures, which can limit the government’s fiscal space to carry out its normal operations, investments, and social and structural policies if the trend continues.

Copyright Business Recorder, 2023

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