Economy is not out of the woods yet: MoF

ISLAMABAD: Pakistan’s economy is still facing significant challenges following high inflation, the slowdown in economic activity with persisting risk to the fiscal side consequent to below the target set for the first nine months of the current fiscal year.

Monthly Economic Update and Outlook for April 2023 uploaded by the Finance Ministry on Saturday states under these circumstances, the government has a daunting task to follow effective revenue mobilisation and cautious expenditure management strategy to end the current fiscal year with a substantial decline in fiscal deficit as compared to last year.

The risks to the fiscal sector still persist as the Federal Board of Revenue’s tax collection although showed a growth of 18 per cent but it remained below the target set for the first nine months of the current fiscal year owing to a slowdown in domestic economic activity and import compression.

Ministry of Finance warns inflation to remain high, could increase further

On the expenditure side, in spite of reducing non-markup spending, higher policy rates both at the domestic and global levels have attributed to higher markup payment.

Headline inflation (CPI) is expected to remain at elevated level in the months to come as its key drivers are food and energy price hikes. Currency depreciation and rising administered prices have contributed to jack up overall price level. Although, the SBP is enacting contractionary monetary policy but inflationary expectations are not settling down. The inflation is expected to remain in the range of 38-38 per cent for April 2023.

The performance of auto-industry also remains subdued due to massive increases in inputs prices, tightening auto finance, and import restrictions. The decline in local cement dispatches was even more significant with a drop of 28.7 per cent. However, there was a positive aspect with an uptick in export shipments.

During the Kharif 2023, availability of inputs regarding seeds, agriculture credit and fertilisers will remain satisfactory but Pakistan met department has informed that slightly above-normal rains are expected in the next three months (April-June, 2023). The seasonal rainfall may provide water for crops in the main rain-fed areas, while lower parts of the country will remain slightly deficient during the season of Kharif.

The net federal revenues increased by 32 per cent to Rs3,133 billion during July-February 2023 against Rs2,374 billion in the same period of last year following a 36 per cent growth in non-tax revenues.

The increase in the non-tax collection is primarily due to higher revenues from the petroleum levy, higher receipts from markup payments, dividend, the PTA profit, passport fees, royalties on oil/gas, and others have also contributed to a substantial increase in non-tax revenues during the first eight months of the current fiscal year.

On the other hand, total expenditure grew by 11.5 per cent to Rs5,815 billion during July-February 2023 as compared to Rs5,214 billion in the same period last year. Current expenditures grew by 16.3 per cent to Rs6,629 billion for the period against Rs4,794 billion during July-February 2022. Within the current, expenditure on markup payments grew by 69 per cent.

The fiscal deficit stood at 2.8 per cent of GDP during July-February 2023 as opposed to 3.4 per cent of GDP for the same period of last year while primary balance posted a surplus of Rs781 billion (0.9 per cent of GDP) during July-February 2023 against a deficit of Rs399 billion (-0.6 per cent of GDP) last year owing to a decline in non-mark-up expenditures.

The trend in MEI during the first nine months of the current fiscal year remained volatile on account of high inflation, high-interest rates, fiscal consolidation, and lack of confidence in economic agents.

Industrial activity measured by the LSM index is the sector that is most exposed to external conditions. Its cyclical pattern is well positively correlated with the cyclical position of Pakistan’s main trading partners. Since the beginning of the current fiscal year, LSM activity is recorded below its natural capacity level.

The government has increased the stipend under the Benazir Kafaalat initiative from Rs7,000 to Rs8,600 after a recent increase of 26 per cent in the BISP fund and till March, the BISP reached over 247,000 children affected by malnutrition and 231,000 pregnant and lactating women (PLW) under the Benazir Nashonuma initiative.

The balance of payment (BoP) data reveals that the trade deficit in goods and services declined by 9.1 per cent month-on month basis and 54 per cent on year-on-year basis. Remittances were recorded $20.5 billion during July-March 2023 against $23 billion in same period last year reflecting a decline of 10.8 per cent, exports decreased by 11 per cent to $20.5 billion from $23 billion, imports by 21.3 per cent to $ 41.3 billion from $ 52.7 billion and the current account deficit by 74.4 per cent to $ 3.4 billion from $ 13 billion during the period under review.

The FDI declined by 22.5 per cent to $ 1,048.4 million during July-March 2023 from $1,353.1 million for the same period a year before and total foreign investment including FDI and Portfolio declined by 98 per cent to $30.7 million from $1,514 million for the same period of last fiscal year.

The PSDP including grants to provinces during July-February 2023 stood at Rs287 billion compared to Rs420 billion for the same period of last fiscal year. Agriculture credit during July-March stood at Rs1,221 billion against Rs958 billion for the same period a year before and credit to private sector Rs302 billion comparable to Rs1,199 billion for last fiscal year.

Copyright Business Recorder, 2023