By Abdul Wajid Khan ISLAMABAD, April 05 (INP-WealthPK): The Ministry of Finance says Pakistan’s economic performance continues to be strong and is still on a trajectory compatible with the economic growth target of around 5% in the current fiscal year (FY22). However, the intensity of internal and external risks still has not been exactly realized, which may adversely affect domestic economic activities. In its monthly economic update and outlook report for March, the ministry says the economy is on the path to recovery. However, domestic and international risks are playing their respective roles, giving a mix picture of performance. Its cyclical position has returned to a more neutral stance. If this trend continues in the next months, economic growth will be driven primarily by the expansion of manufacturing capacity. Further, inflation and the current account deficit are still under pressure. The government is taking measures to limit as much as possible further increase in the cost of living in the coming months. Moreover, the government measures designed to stimulate exports and discourage unnecessary imports are expected to help constrain the current account deficit. The recent geopolitical tensions, particularly the Ukraine crisis, are the most important external risk factors. Likewise, domestic political conditions are increasing the risks. A further escalation in these risks could hamper the positive outlook for Pakistan’s economy and may also aggravate macroeconomic imbalances. The report highlights that presently the global economy is facing three challenges (financial sanctions, commodity prices & supply-chain disruptions) due to the ongoing Russia-Ukraine conflict. These challenges have fuelled global inflation and downgraded the growth outlook in most countries. Energy and non-energy prices increased 7.7 % and 4.2 % respectively in February 2022. Among key subgroups, only fertilizer witnessed a decline of 1.9%, while agricultural commodities rose 4.5%, metals and minerals 4.7%, and precious metals 2.2 %. In real sectors, wheat crop has been sown on an estimated area of 8.995 million hectares. Wheat harvest has started in lower Sindh and the production is expected to be around 28.9 million tonnes. During Jul-Jan period of the FY22, large scale manufacturing (LSM) sector posted a growth of 7.6 % compared to 1.8 % the same period last year. In monetary and external sectors, fiscal deficit in Jul-Jan FY22 accounted for 2.9% of gross domestic product (GDP) (Rs1,862 billion). The primary balance posted a deficit of Rs174 billion. During 1st July-25th February, FY22 money supply (M2) showed a growth of 0.5 percent (Rs123.7 billion) compared to the growth of 4.59 percent (Rs960.1 billion) last year. During Jul-Feb FY22, the current account deficit recorded $12.1 billion. Although the economic recovery is underway, still the domestic and international scenario is changing over the course of time. Thus, inflationary and external sectors risks are building macroeconomic imbalances. The government is taking various policy, administrative and relief measures to counter downside risks for the economy. The international commodity prices are expected to rise further because of rising geopolitical tensions, although their pass-through into domestic consumer prices will be contained by current and newly designed government measures and relief packages. Still, year over year (YoY), inflation is expected to remain temporarily within the double-digit territory. The monthly economic indicator (MEI) remains strong, although some slowdown in growth was observed in Feb 2022. In addition, economic growth in Pakistan’s main trading partners continues to remain above trend, although some slowdown may be on the cards due to the uncertainties surrounding the recent geopolitical tensions and continued increase in international commodity prices. If these tensions continue or intensify, Pakistan’s growth may be affected as well. Exports also benefit from the real effective exchange rate. Imports will probably return to a level that is more in line with the domestic economic activity and the levels of international commodity prices. As a result, the trade balance may less deteriorate in March 2022 as well. However, geopolitical risks still persist. In March, workers’ remittances are expected to revert to normal levels. Taking these factors into account, as well as its other components, the current account deficit in March is expected to stay well below the unsustainable levels observed during the period from Aug 2021 up to Jan 2022. The first seven months of the current fiscal year have witnessed significant pressure on fiscal accounts due to rising expenditures under grants and subsidies. On the revenue side, the Federal Board of Revenue (FBR) tax collection has been able to achieve more than 65.2% of its annual target during the first eight months of the ongoing fiscal year. However, the government has announced a relief package for the masses to offset the increasing oil prices by reducing the sales tax rate and petroleum development levy. All these are collectively adding risks to the fiscal sector.