By Abdul Wajid Khan

ISLAMABAD, July 22,: The economic growth of Pakistan is expected to witness an increase in the current fiscal owing to the structural reforms being introduced by the government, WealthPK reports.

According to the latest supplement report of the Asian Development Bank (ADB), gross domestic product (GDP) growth in Pakistan is expected to moderate in the previous financial year owing to fiscal tightening measures to manage growing demand pressure and contain external and fiscal imbalances.

The report said that though the impact of Covid-19 has declined in most of the developing countries in Asia, the economic fallout in the region has increased due to the Russia-Ukraine conflict. Supply disruptions and escalating sanctions imposed on Russia led to a hike in global commodity prices and consequently, inflationary pressures increased in many regional economies including Pakistan.

Headline inflation is at a double-digit level in most of the Caucasus and Central Asia, Mongolia in East Asia, Pakistan and Sri Lanka in South Asia and Laos and Myanmar in Southeast Asia. Headline inflation in Pakistan increased by 21.3 percent in July 2022. But the headline and core inflations in the rest of the developing economies in Asia remain manageable. In the region as a whole, inflation remains moderate on average and much lower than in other parts of the world.

The report said that Pakistan’s inflation was marginally revised up for the previous fiscal and substantially for the current financial year. In addition to the effects of elevated global energy and food prices, the revival IMF programme for Pakistan will raise power tariffs as government will withdraw subsidies in the oil and power sectors.

According to a report of the Ministry of Finance, Pakistan’s economy faces several severe challenges. Inflation is too high and the fiscal deficit is at a level where its financing is becoming challenging. Further, the high trade deficit is leading to external imbalances putting extra pressure on foreign reserves and on the exchange rate.

The report said that economic growth seems to slow down during the current financial year. Moreover, high uncertainties are hampering market confidence. In the short run, Pakistan is confronted with the challenge to fulfil its external finance requirements stemming from current account deficits and foreign debt servicing.

The report said that the government is committed to ensuring stability and confidence in the economy. A stable fiscal policy with a higher growth-promoting path for Public Sector Development Programme, based on physical and human capital development, will be obligatory.

Likewise, subsidies targeted to stimulate the development of innovative industries and services will be essential. Growth-oriented revenue policies will also be helpful. There is an intense need for creating an investment-friendly environment in the country. The report said that well-functioning competitive markets were also required for economic growth. It stressed the need for the continuation of such economic policies, which brought improvement in related sectors.

It is expected that by taking these steps, potential output growth will be upgraded, resulting in higher employment and real income growth. It will also create additional capacity for exports and import substitution and a stable exchange rate environment. Pakistan’s economy in the previous fiscal witnessed a GDP growth of 5.97 percent but this unsustainable growth triggered macroeconomic imbalances.

Experts told WealthPK that the government should devise and implement a comprehensive strategy to ensure political and economic stability to meet its targets in the current financial year. The government has already fixed the economic growth target of five percent for the current financial year on the back of agriculture (3.9%), manufacturing (7.1%) and the services sector (5.1%).

Credits: INP-WealthPk