ISLAMABAD: The Finance Ministry in its monthly Economic Update and Outlook report released on Tuesday forecasted that inflation will remain high in the coming months before easing out gradually.
It is expected that inflation will remain around 28 to 30 % in coming months. The key reasons are uncertain political and economic environment, pass through of currency depreciation, recent rise in energy prices and increase in administered prices. Although SBP has been enacting contractionary monetary policy, the inflationary expectation would take some time to settle.
The report states that China has finally lifted pandemic restrictions and resumed mobility and this will result in a pickup of economic activity and provide momentum to the international economy.
International financial institutions predict that China will account for one-third of international growth during the current year.
The largest beneficiaries from China’s rebounding will possibly be the oil exporters and its Asian neighboring countries, according to Goldman Sachs. Only China’s yearly food imports are almost $266 billion which are expected to increase over the years.
Pakistan can benefit from the significant and enhanced consumption patterns of the food sector within the Chinese economy. Pakistan is a home to the Chinese flagship initiative, i.e., CPEC. This initiative slowed down during the previous government, and it is high time to revive the program to put Pakistan on the trajectory of sustainable development by connecting Pakistan to 150 markets worldwide through the BRI.
The report stated that during the first half of FY2022-23, total revenues grew by 18.8 % to reach Rs 4,699 billion against Rs 3,956 billion in the same period of last year.
The major contribution to this growth came from a 26.4 % increase in non-tax collection, while tax collection has also shown remarkable performance by posting a growth of 17 % during the first half of the current fiscal year.
Total expenditures grew by 19.8 % to Rs 6,382 billion in July-Dec FY2023, against Rs 5,328 billion in the same period last year. Current expenditures increased by 30 % to Rs 6,061 billion in Jul-Dec FY2023 against PKR 4,676 billion in the comparable period of the last year.
Foreign Direct Investment (FDI) reached $683.5 million during Jul-Jan FY2023 (USD 1,224.7 million last year) decreasing by 44.2 %. Foreign Public Portfolio Investment recorded a net outflow of $1,010.9 million compared to an inflow of $958.3 million during the same period last year. Total foreign investment during Jul-Jan FY2023 recorded an outflow of USD 341.4 million as against an inflow of $1,875.4 million last year.
The ministry maintained that the stabilisation policy of the government has been successful in improving the current account deficit by 67% reduction during the first seven months of the current fiscal year whereas the non-markup current expenditures are also significantly reduced to contain the fiscal deficit.
During the first half of the current fiscal year, interest payments on the Government’s debt significantly contribute to the total expenditures, which can limit the Government’s fiscal space to carry out its normal operations, investments, social and structural policies if the trend continues.
A couple of weeks ago, the market was corrected to minimize the difference between interbank and open market exchange rates whereas more recently, it is corrected by 5 % appreciation of the Pakistani Rupee given its economic fundamentals.
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