By Abdul Wajid Khan

ISLAMABAD, Aug 05 (INP-WealthPK): The Ministry of Finance has said that Pakistan’s economy is witnessing high inflationary and external sector pressures, putting the homey currency under great stress. However, it said the government was taking all possible measures to counter these pressures so economy could achieve the growth target of 5% in fiscal year 2022-23.

According to the latest monthly economic update and outlook report of the ministry, inflationary and external sector risks are building macroeconomic imbalances in the economy.

Furthermore, ongoing political unrest is not only creating governance problems, but also intensifying the uncertainties resulting in exchange rate depreciation, which will, in turn, impact the cost of production. Halting investment decisions is further making the outlook blurry. All these factors are making the economic outlook uncertain.

The report said rising global commodity prices, supply chain disruptions, monetary tightening and the Russia-Ukraine conflict dented the global economic recovery.

The International Monetary Fund has predicted the year 2022 as tough, and 2023 even tougher. The US economy witnessed higher inflationary pressures as inflation surged to 9.1% in June, the highest since 1981.

Global commodity prices observed a mixed trend in June 2022. Energy prices increased by 6.4%, while non-energy prices fell by 4%. Agriculture prices dropped 3.7%.

Food prices declined by 4.7%, led by grains (-6.6%) and oil and meals (-5.7%). Fertiliser prices eased 0.9% and metal prices plunged 5.5%.

The ministry of finance report further highlighted that the high international prices were still adversely affecting external position even at the start of FY23.

The year-on-year (YoY) inflation remained in double-digits since November 2021. YoY inflation accelerated more than 20% and may continue to remain high in the immediate short-run.

The report underlined that there was an intense need for the successful completion of the IMF seventh and eighth reviews of Pakistan’s Extended Fund Facility (EFF).

The government has taken all difficult decisions to make reviews successful, reaching a staff-level agreement for a $1.17 billion loan tranche.

On the other hand, the report added, despite the gradual decline in the economic growth outlook in Pakistan’s main export areas, domestic economic activity continued to be strong.

But international reserves have fallen to levels that are too low against international standards.

These factors have contributed significant upward pressure on domestic interest rates.

These developments may put downward pressure on domestic demand and risk slowing down economic growth in the short-term.

On the other hand, long-term economic policies should see through these short-term headwinds. Once the tranche from IMF is received, additional financing channels will open themselves.

This should allow focus on longer-term objectives. One of them is to secure a high sustainable growth trajectory capable of absorbing Pakistan's rapidly growing human capital while avoiding internal and external financing constraints.

To avoid these constraints, effective supply-side dynamics must be combined with prudent demand management.

The report said, in the real sector, according to the initial estimates reported by Crop Reporting Service Department, Punjab, the overall cotton area sown was recorded at 1.485 million hectares. This area comprises 81.5% of the target and 16.1% higher than the same period last year.

Whereas the cotton cultivation area in Sindh was 0.517 million hectares, which was 80.8% of the target area. The total sown area stood at 2.002 million hectares, which was 81.4% of the target, and 6.9% higher than last year.

During July-May FY22, large-scale manufacturing posted a growth of 11.7% compared to 10.2% during the same period last year.

In fiscal, monetary and external sectors, the fiscal deficit in July-May FY22 was recorded at 5.2% of GDP. The primary balance posted a deficit of Rs945 billion.

During the period from July 1 to June 24, FY22, money supply (M2) observed a growth of 10.4% (Rs2,532.9 billion) as compared to a growth of 12.5% (Rs2,605.5 billion) last year.

During FY22, the current account deficit was recorded at $17.4 billion.

The monthly economic indicator continues to issue a positive economic signal in June 2022, owing primarily to the continued strong performance of the industrial sector, which is known to have significant multiplier effects on other sectors of the economy.

In June 2022, the surge in imports of goods owing to increase in international commodity prices widened the trade deficit.

Workers’ remittances were not enough to finance the trade deficit, as a result, current account deficit widened.

However, it is expected that with the government’s policy measures, imports will fall, while better performance of exports of goods and services and workers’ remittances will bring current account deficit at manageable level in the coming months.

Despite difficult economic conditions, tax collection surpassed the Rs6 trillion mark in FY22.

Due to broad-based growth in all revenue heads, net tax collection increased by 29% in FY22 over the preceding year.

However, during the first 11 months of FY22, expenditure overran the revenue growth, thus fiscal deficit is likely to remain at 7.1% of GDP in FY22.

Credits: Independent News Pakistan—Wealthpk