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Govt ‘fears’ domestic, global crisis may impact economic recovery

Says inflation, current account deficit are still under pressure
Updated 29 Mar, 2022 11:20am
The Ministry of Finance in its monthly, “Economic Update and Outlook” released Monday stated that the domestic, and international risks are playing the role which is giving mix picture of its monthly performance. Reuters/File
The Ministry of Finance in its monthly, “Economic Update and Outlook” released Monday stated that the domestic, and international risks are playing the role which is giving mix picture of its monthly performance. Reuters/File

The federal government is apprehensive that domestic and international changing scenario may have ramifications on the economic recovery, thus, inflationary and external sectors risks are coming into action to build macroeconomic imbalances.

The Ministry of Finance in its monthly, “Economic Update and Outlook” released Monday stated that the domestic, and international risks are playing the role which is giving mix picture of its monthly performance. The Finance Ministry maintained that Pakistan’s economic performance remained strong and is still on a trajectory compatible with an economic growth target of around five percent in the current fiscal year and if this trend continues in the next months, economic growth will be driven primarily by the expansion of manufacturing capacity.

However, the intensity of internal and external risks has still not been exactly realized which may adversely affect domestic economic activities.

Further, inflation and the current account deficit are still under pressure.

The government is taking measures to limit as much as possible further increases in the cost of living in the coming months. Moreover, the government measures designed to stimulate exports and discourage unnecessary imports are expected to contribute to constrain current account deficit.

The recent geopolitical tensions, in particular the Ukraine crisis, is the most important external risk factor.

Likewise, domestic political conditions are building domestic risks.

A further escalation of these risks could hamper the positive outlook for Pakistan’s economy and may also aggravate the macroeconomic imbalances. The fiscal deficit during the first seven months of the current fiscal year July-January 2022 has been recorded at 2.9 percent of GDP or Rs1862 billion against 2.4 percent of GDP or Rs1,309 billion for the same period a year before.

The primary balance posted a deficit of Rs174 billion (0.3 percent of GDP) compared to a surplus of Rs416 billion (0.8 percent of GDP).

The net federal revenues have increased by 6.4 percent to Rs2,152 billion during the period under review year compared to Rs2,023 billion for the same period of last year. On the other hand, total expenditures, increased by 23.9 percent to Rs4,542 billion in July-January 2022, compared to Rs3,665 billion for the same period of previous year and higher spending was attributed largely to a 23 percent increase in current spending on the back of higher power sector subsidies and increase in grants for Covid-19, social protection, contingent liabilities, and DLTL (drawback of taxes).

Similarly, development expenditures (PSDP) increased by 37.1 percent to Rs362 billion in July-January 2022, compared to Rs264 billion in the same period the previous year.

The Federal Board of Revenue (FBR) has exceeded its revenue target by 7.7 percent to Rs3,802.1 billion against the target of Rs3,530.5 billion, which is Rs271.6 billion more than the eight-month target.

The current account deficit was recorded US$ 12.1 billion for July-February 2022 as against a surplus of US$994 million last year. The current account deficit, Finance Ministry said, has widened due to the growing import of energy and non-energy commodities, along with a rising trend in the global prices of oil, COVID-19 vaccines, food and metals. Exports on grew by 28.1 percent during July-February 2022 and reached $20.6 billion ($16.1 billion last year) while imports grew by 49.1 percent and reached $ 47.9 billion ($32.1 billion last year).

The government said that it was expecting wheat production target for the ongoing fiscal year near to the allocated target of 28.9 million tonnes after improved inputs availability of seeds and pesticides, irrigation water and increased agriculture credit disbursement. Additionally, the government has increased the wheat support price from Rs1,950 to Rs2,200 per 40kg for Rabi 2021-22.

Large Scale Manifesting side, during July-January 2022, was recorded at 7.6 percent against 1.8 percent last year with car production and sale increased by 61.6 percent and 57.5 percent, respectively. Trucks and buses production and sale increased by 80.8 percent and 66.2 percent and tractor production and sale increased by 10.1 percent and 6.1 percent, respectively

The ministry said that in February 2022, total cement dispatches declined by 4.75 percent to 4.36 million tonnes (4.57 million tons in February 2021).

The story was originally published in Business Recorder on March 29, 2022.

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