Pakistan will not be able to achieve its growth targets for the fiscal year 2022-23 due to floods and financial instability. According to the Finance Ministry’s Monthly Economic Update and Outlook for December 2022, “this combination of low growth, high inflation and low levels of official reserves is particularly challenging for policymakers.”

It said that there is a negative output gap in addition to persistent inflation. “Global energy crisis has pushed up the prices of other commodities, thus putting a downward pressure on foreign exchange reserves.” The government and the State Bank of Pakistan (SBP) had taken short-term measures to control inflation, spur growth, and keep the reserves intact, it said.

The government is strenuously working on fiscal consolidation, which is becoming very difficult due to 2022-floods and is taking long-term decisions to increase the productive capacity of the economy. The report said that inflationary pressures have started to ease out on a month-on-month (MoM) basis. Consumer Price Index (CPI) inflation declined from a massive high of 4.7% in October 2022 to 0.8% in November 2022. 

The Sensitive Price Indicator (SPI) also decelerated for three consecutive weeks in December. Its effect will be seen in the CPI inflation for the current month. Inflation will further decrease due to a cut back in petrol prices, 100 basis point increase in policy rate by the SBP, and a decrease in the prices of commodities in the International Market.

The report said that the government is also trying to incentivize the production of wheat crop in the country after the 2022-floods to meet the demand targets. It said that Large Scale Manufacturing (LSM) could not meet its production targets. “Foreign Direct Investment (FDI) reached USD 430.1 million during July through November (FY-23) as against USD 884.9 million last year (FY-22), showing a decrease of 51.4%. On a MoM basis, FDI was recorded at USD 81.8 million in November 2022, as against an inflow of USD 94.9 million in October 2022,” the report said.

In the months of July through November (FY-23), workers’ remittances were recorded at USD 12.0 billion against USD 13.3 billion last year, showing a decrease of 9.6%. Pakistan’s total liquid reserves increased to USD 12.0 billion on December 21, 2022, with the SBP’s reserves standing at USD 6.1 billion. Commercial banks’ reserves remained at USD 5.9 billion. The KSE-100 index closed at 42,349 points on November 30, 2022 while market capitalization settled at Rs 6,768 billion.

Credit : Independent News Pakistan-WealthPk