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Ministry warns of rising inflation, tough economic conditions ahead – Newspaper




ISLAMABAD: Showing a dismal macroeconomic performance on a large scale so far this year, the Ministry of Finance warned of an inflation rate above 21%, difficult economic conditions and increasing budgetary challenges due to spending overruns during of the current financial year (FY23).

“In Pakistan, the economic environment is difficult due to flood damage,” the ministry said in its “Monthly Economic Update & Outlook” on Sunday.

He forecast consumer price index (CPI) inflation to remain in the 21-22.5% range and explained that higher-than-expected inflation and the tight monetary policy stance of the State Bank were also affecting growth.

The report, prepared by the Economic Adviser’s Wing (EAW) of the Ministry of Finance, put the budget deficit for the first two months (July-August) of the current financial year at 0.9% of GDP or 672 billion rupees against 0.7% of GDP or 462 billion rupees. last year and predicted that the large-scale relief and rehabilitation needs resulting from the catastrophic flood posed significant challenges to fiscal consolidation efforts.

Report says expected slowdown in growth due to floods could impact resource mobilization efforts

“As the government needs to allocate greater resources for the rescue and rehabilitation of flood victims and the reconstruction of infrastructure, there will be significant pressure on overall spending,” the report said, adding that an expected slowdown economic activity and growth due to the devastation caused by the floods may impact domestic resource mobilization efforts.

The MFA noted that the agricultural sector has been particularly affected by the destruction caused by the floods and that due to the downstream linkages, this impact will also be transferred to other sectors of the economy, thus changing the overall economic outlook. .

Already, “since the beginning of the financial year, economic activity seems to have fallen on a path of weaker growth”. In addition, slowing global economic growth as well as rising commodity prices are severely hampering the performance of Pakistan’s major trading partners.

A slowdown in the large-scale manufacturing (LSM) sector, although positive in August, and higher production costs were the additional contributing factors with negative consequences for growth in the coming months. In addition, the moderation in imports may indicate a slowdown in domestic activity.

Regarding agriculture, the report indicates that the production of sugar cane fell by 7.9% to 81.6 million tons this year against 88.7 million tons last year, while the production of rice has decreased by 40.6% to 5.5 million tons against 9.3 million tons last year. Maize production fell by 3 pc to 9.2 million tonnes and that of cotton by 24.6 pc to 6.3 million bales.

Tractor production and sales declined by 36.2pc (7,991 units) and 30.3pc (8,379), respectively, in July-September FY23, while disbursement of agricultural credit declined. increased by 31.5 pc to reach 384 billion rupees. In the 2022 Kharif season (April-September), urea and DAP withdrawals were 3,137,000 tons (3.7 pc less than Kharif 2021) and 491,000 tons – 44.8 pc less than Kharif 2021.

The performance of the industrial sector also remained under pressure amid global headwinds and flooding. Stabilization measures in the form of monetary and fiscal tightening, import compression strategies to correct imbalances also removed LSM by 0.4pc during July-August for FY23, down from growth of 11, 3 pc during the same period last year. Eight of the 22 sectors experienced positive growth, while production in 14 others declined.

In FY23 from July to September, CPI inflation stood at 25.1% compared to 8.6% in the same period last year. Food inflation has increased due to nationwide floods that have destroyed crops as well as agricultural land. The primary fiscal balance showed a deficit of 90 billion rupees in July-August for fiscal year 23 against a deficit of 37 billion rupees in the comparable period last year. The first quarter of the current financial year ended with a growth of 17% and a net tax collection of 1,634 billion rupees against 1,396 billion rupees during the same period last year.

Within total tax collection, direct taxes posted healthy growth of 41.8%, followed by federal excise at 11.6%, customs at 5.1% and sales tax at 2 .7%. Loans to private sector companies saw an expansion of Rs 99.7 billion in the first quarter of FY23 from Rs 177.4 billion last year.

The current account posted a deficit of $2.2 billion for July-September FY23 compared to $3.5 billion last year, mainly due to a 2.6% increase in exports and a contraction 12.4% of imports. Total imports in July-September FY23 decreased to $16.4 billion from $18.7 billion last year.

Foreign direct investment in the first quarter of the current fiscal year fell 47% to $253.4 million from $479.2 million last year. Foreign private portfolio investment recorded a net outflow of $12.1 million between July and September FY23. Foreign public portfolio investments recorded a net outflow of $18.2 million.

Total foreign portfolio investment saw an outflow of $30.3 million in fiscal 2023 from July to September, compared to an inflow of $961.6 million last year. Total foreign investment during July-September FY23 reached $223.1 million from $1.358 billion last year, down 600%. In July-September FY23, workers’ remittances were recorded at $7.7 billion compared to $8.2 billion last year.

Posted in Dawn, October 31, 2022