ISLAMABAD: Inflation to remain on a higher trajectory despite monetary tightening primarily due to rupee depreciation as well as on account of many challenges emanating from the uncertain external and domestic economic environment.
This was noted by Finance Ministry in its monthly “Economic Update and Outlook May 2023” uploaded on its website on Tuesday. According to the economic update, inflationary pressure in May 2023 is likely to continue as was observed in April 2023 with a range of 34-36 percent. The potential reasons for the rising price level are flood damages, disruptions in supply chains, devaluation brought by the macro-economic imbalances and political uncertainty.
Although the current performance of fiscal indicators remained effective, there are certain downside risks to the fiscal sector towards the end of the current fiscal year, which may emerge due to the higher-than-expected expenditure mainly, due to a rise in debt servicing costs and higher expenditures for the flood rehabilitation activities.
On the revenue side, the FBR tax collection increased by 16.1 percent during July-April fiscal year 2023, however, it remained less than the target. The slowdown in economic activity and import compression explain a substantial portion of the lower-than-expected tax revenue during the review period.
Inflationary pressure to persist in May, warns Ministry of Finance
Pakistan’s economy experienced 0.29 percent provisional GDP growth in the fiscal year 2023 on account of many challenges emanating from the uncertain external and domestic economic environment. These challenges triggered CPI inflation to remain on a higher trajectory despite monetary tightening primarily due to the rupee depreciation. Moreover, external payments also remained burdened due to lesser foreign exchange inflows.
The tightening, flood impacts, import limitations, high borrowing, fuel costs, and political uncertainty are some significant factors that adversely affected economic activities in the ongoing fiscal year. Large Scale Manufacturing (PSM) activity was recorded below the capacity level since the start of the fiscal year 2023 because of policy measures to cool down the overheated economy and to avoid default on its external liabilities.
The downside risks pertaining to supply disruptions, inflationary pressures, synchronised policies, and high base effect continue to prevail, which will have an impact on the LSM output in the coming month. LSM witnessed a contraction of 8.1 percent during the period of July-March fiscal year 2023 for various reasons. The performance of the auto industry also remains subdued due to massive increases in input prices, tight auto financing, and continued import restrictions.
During the first 10 months, total cement dispatches declined by 17.5 percent to 36.551 million tons against 44.306 million tons last year. In April 2023, cement dispatches decreased by 16.5 percent to 2.951 million tons 3.536 million tons in Apr 2022. The decline in local cement dispatches was even more significant, with a drop of 25.1 percent from 3.380 million tons in April 2022 to 2.531 million tons in April 2023.
The fiscal deficit during July-March 2023 has been recorded at 3.6 percent of GDP and the primary balance surplus 0.6 percent of GDP. Total expenditure soared by 18.7 percent Rs10,016.9 billion in July-March fiscal year 2023 against the growth of 27 percent Rs8,439.8 billion in the same period of last year. Current expenditures increased by 25.3 percent during July-March 2023 primarily due to a 69.1 percent growth in markup payments.
The current account posted a deficit of $3.3 billion for July-April fiscal year 2023 as against a deficit of $13.7 billion for the last year mainly due to the contraction in imports.
Exports on (fob) declined by 13.6 percent during July-April 2023 and imports on fob declined by 23 percent during July-April fiscal year 2023, whereas, the Foreign Direct Investment (FDI) reached $ 1170.1 million during July-April 2023 ($1,523.7 million last year) decreasing by 23.2 percent.
Foreign Private Portfolio Investment registered a net outflow of $ 0.9 million during July-April 2023. Foreign Public Portfolio Investment registered a net outflow of $ 1009.6 million, on account of Sukuk repayment in December 2022. The total foreign portfolio investment recorded an outflow of $ 1010.5 million during July-April fiscal year 2023. Total foreign investment during July-April 2023 recorded an inflow of $159.6 million as against $ 1639.2 million for the last year.
In July-April 2023, workers’ remittances recorded at $ 22.7 billion against $ 26.1 billion for the same period of last fiscal year, decreased by 13 percent with month-on month basis, remittances decreased by 12.8 percent in April 2023.
Copyright Business Recorder, 2023
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