ISLAMABAD: The Finance Ministry has stated that the government has been able to limit the fiscal deficit at 0.9 percent of GDP or (Rs 415 billion) during the first two months of the current fiscal year as opposed to 1.2 percent (Rs 499 billion) for the same period a year before and acknowledged inflation as one of the main challenge.
The ministry in its monthly “Economic Update and Outlook” for October 2020, noted that the primary balance (a surplus of Rs 69 billion (0.2 percent of GDP during July-August, 2021) has been kept in surplus as higher non-tax revenues collection (Rs 156 billion) provided significant support to contain the fiscal deficit on lower side, while FBR tax collection surpassed its target set for the first quarter of 2021. Therefore, fiscal deficit was contained within the target set for first quarter. Keeping in view the encouraging growth in FBR tax revenue collection during the first quarter and significant rise in non-tax revenues, it is expected that both will maintain its pace in the second quarter as well.
Thus, it is expected that Fiscal deficit will remain as per targeted for quarter as well, however, the risk of high public spending due to COVID-19 may build pressure on expenditure in second quarter 2021.
Way Forward Based on high frequency indicators, summarized in the MEI, economic growth is showing persistent recovery in first quarter. In absence of any adverse future shocks, the economy is on its way not only to rebound from the pandemic related crises, but also to record a reasonable growth rate for the full fiscal year.
Presently, inflation is one of the main challenges. However, the government is taking all possible measures to control it. Together with measures that ensure sufficient supply of goods, especially food related production, it is expected that inflation will remain under control whereas policy measures will contribute to better functioning markets. Most importantly, although domestic economic activity is expected to recover, still the risk of pandemic attack persists if the SOPs are not fully followed. Thus, Pakistan’s near-term economic prospects are promising subject to reducing uncertainty and restoring business confidence. On external side remittance are up by 31 percent during the first quarter and the government expects that this trend would continue in the ongoing month as well and LSM index witnessed an increased in August by 1.2 percent and is expected to show positive year-on-year growth. The ministry said that latest data shows significant improvement in production of rice and sugarcane in agriculture sector and Ministry believes that agriculture sector is expected to achieve its growth target of 2.8 percent.
The Ministry said that the Inflation in Pakistan was most recently remained driven by higher food prices, while non-food inflation remained moderated. Supply disruption in food related commodities was mainly due to extended monsoon season which has built inflationary pressure.
During 1st July-2nd October, 2020, Broad Money (M2) witnessed a cumulative expansion of Rs 103.4 billion (growth of 0.5 percent) against Rs 28.7 billion (growth of 0.2 percent) last year. The contributor in the growth of money supply is Net Foreign Assets (NFA) which stood at Rs 289.1 billion compared to Rs 233.4 billion last year. The Private Sector Credit (PSC) witnessed the retirement of Rs 122.4 billion as compared to the retirement of Rs 49.4 billion last year. Private sector credit demand remained muted primarily for working capital requirement in the wake of surplus inventories particularly the manufacturing concern. Foreign direct investment during July-September 2021 decreased by 23.8 percent and reached to $ 415.7 million as compared to $ 545.5 million a year before, however, it increased by 68.2 percent to $189 million on month on month basis in September 2020 against $ 112.3 million in August 2020.
Copyright Business Recorder, 2020
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