ISLAMABAD: The Finance Division has stated that prudent and effective economic decisions, political and economic certainty, as well as a continuation of friendly economic policies along with enough foreign exchange financing will be required to achieve higher and sustainable economic growth.
In its “Economic Update and Outlook” for the month of July 2023 released on Wednesday, Finance Division added that the recently-approved IMF SBA and other bilateral and multilateral inflows will pave the way to further improve the macroeconomic environment and the confidence of economic agents.
According to Finance Division, the fiscal deficit during the first 11 months (July-May 2023) has been recorded at 5.5 percent (Rs4,652.2 billion) against 5.2 percent (Rs3,468.5 billion) in the comparable period of last year, whereas, the primary deficit reducing significantly from Rs945.3 billion last year to Rs112 billion during July-May fiscal year 2023.
Net federal revenues grew by 24.4 percent to Rs4,166.6 billion in Jul-May 2023 against Rs3,349.5 billion last year. The major contribution in revenues came from a 31 percent increase in the non-tax collection on account of higher collection from petroleum levy during the period under review. Besides, other components like mark-up PSEs and others, dividends, passport fees, royalties on oil/ gas, and windfall levy against crude oil also contributed to increasing the non-tax collection.
On the expenditure side, total spending grew by 20 percent to reach Rs8,849.6 billion during Jul-May 2023 against Rs7,361.5 billion last year. Within total, current expenditure grew by 22 percent to Rs8,337.8 billion during the period under review against Rs6,843.8 billion last year. The entire increase in current spending stemmed from an 80 percent rise in mark-up payments owing to a higher policy rate.
The current account posted a deficit of $2.6 billion for fiscal year 2023 against a deficit of $17.5 billion last year, mainly due to a contraction in imports. Exports on Free on Board (FOB) declined by 14.1 percent during the fiscal year 2023 and reached $ 27.9 billion ($32.5 billion last year) while imports on FOB declined by 27.3 percent and reached $52 billion against $71.5 billion for last year.
The update noted that during July-May fiscal year 2023, the agriculture credit disbursement increased by 28.4 percent to Rs1,565.2 billion as compared to Rs1,219.3 billion last year. Large scale manufacturing remained on a negative trajectory with the observed decline of 9.87 percent during Jul-May fiscal year 2023 due to supply chain disruptions, inflationary pressures and resultant hikes in input prices, and continued contractionary policy stance at the domestic level to correct the macroeconomic imbalances.
On a year-on-year basis, LSM nosedived by 14.37 percent in May 2023 and on a month-on-month basis, it grew by 5.88 percent. During the period, four sectors witnessed positive growth which includes wearing apparel, leather products, furniture, and others (football). The automobile sector continues to face challenges due to an unfriendly economic environment as the total production witnessed a decline of 37.4 percent in the fiscal year 2023 and total sales dipped by 37.8 percent.
The poor performance in the cars, tractors and trucks and buses remains the major contributors to the overall decline of this sector as car production and sale decreased by 55 percent and 58.7 percent, tractors production and sale decreased by 46.1 percent and 47.5 percent, and trucks and buses production and sale decreased by 40.3 percent and 41 percent, respectively. The sale of petroleum products was down by 26 percent in the fiscal year 2023 to 16.6 mn tons from 22.6 mn tons in the same period last year.
Oil sales clocked in at 1.3 mn tons in June 2023, a 31.0 percent decline on a YoY basis. In fiscal year 2023, total cement dispatches declined by 15.7 percent to 44.579 mn tons. In June 2023, demand for cement dispatches declined by 22.8 percent to 4.063 mn tons (5.264 mn tons in June 2022). Local cement sales by the industry came in at 3.487 mn tons in June 2023, a substantial decline of 30percent from the last year. Whereas, exports surged by 102.6 percent from 284,471 tons to 576,309 tons during the same period.
The economic update added that the government succeeded in ensuring the sustainability of the external and fiscal sectors through various tough decisions and stabilisation measures. In fiscal year 2024, the government is gearing towards achieving higher growth of 3.5 per cent through various measures such as the Kissan package, industrial support, export promotion, encouragement of the IT sector, and resource mobilization, etc.
The update noted that for the fiscal year 2024, the government has unveiled a comprehensive strategy for every sector of the economy in an effort to revive economic growth and move towards a higher inclusive and sustainable growth trajectory.
Additionally, SBP’s withdrawal of restrictions on imports will create demand for imports. All these measures will be supportive in improving the revenues. On the expenditure side, various austerity measures are in place that will be helpful in reducing non-productive expenditures.
Copyright Business Recorder, 2023
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