Islamabad:
Pakistan’s economic challenges – higher budget and current account deficits – have reduced to a manageable level, laying the foundation for higher economic growth, the Economic Advisers wing of the Ministry of Finance claimed on Wednesday.
In its monthly economic outlook report, the Treasury’s Economic Advisers wing said inflation would now ease to a “moderate level”, although it would still be in upper double digits.
“The twin deficit is on a downward trajectory which means better financial management to reduce macroeconomic imbalances. This lays the foundation for progress towards higher and sustainable economic growth,” the finance ministry said.
Budget and current account deficits, known as the twin deficits and problems of Pakistan’s economy, have limited economic growth and are the symptoms of irresponsible expansionary fiscal policies.
It is likely to be the second-to-last economic outlook report released by the finance ministry during the interim setup. The election is scheduled for February 8 and January will be the last month for the superintendents.
The December outlook has painted a rosy picture of the economy, but the sustainability of these indicators remains in doubt.
The finance ministry said the outlook for inflation for the rest of the current financial year is moderate despite the upward revision in set prices. It added that inflation is expected to remain around 27.5% to 28.5% this month and may ease further to 25% in January. However, this rate is quite high for the majority of Pakistanis.
The finance ministry said the pace is slowing due to a stable exchange rate, subdued aggregate demand, a better supply position, subdued international commodity prices and a favorable base effect.
He added that the recent drop in petrol and diesel prices is expected to offset the inflationary pressure exerted through higher natural gas prices as the drop in fuel prices has a significant impact on the common man through reduced transportation and production costs.
The finance ministry said careful expenditure management was instrumental in controlling non-core expenditure. However, the challenge of higher premium payments remains. The government spent Rs 2.3 trillion or 82% of net federal income on interest payments during the July-October period of this fiscal year.
Reading An improving economy pushes the PSX to new highs
The finance ministry said it would continue the current fiscal strategy to meet the targets, emphasizing both revenue enhancement and prudent expenditure control.
The government has halted development spending – to just Rs 76 billion in four months – received a Rs 970 billion global profit payment from the central bank to run lower deficits, sources said.
The finance ministry said “the fiscal side underlines the successful implementation of the consolidation measures” in the first quarter of 2024, leading to a significant increase in total revenue that outstripped the increase in spending.
It added that the fiscal deficit narrowed to 0.8% of GDP or Rs862 billion and the primary surplus improved to Rs1.43 trillion in the first four months. The primary surplus continued to improve due to subdued growth in non-incremental spending, it added.
Due to the SBP payment and higher oil levy, net federal receipts increased to Rs 2.8 trillion in the first four months of the fiscal year.
The sharp increase in revenue was largely attributed to significant improvement in non-tax revenue which increased by more than 360% in four months. Non-tax revenue rose to Rs 1.58 trillion. Similarly, FBR tax collection increased by 29% to Rs 2.75 trillion.
The government’s nightmare was higher interest payments which rose 63% to Rs 2.23 trillion, while debt non-service expenditure rose 19%. The finance ministry said external sector indicators also showed a strong recovery in the first five months of the financial year.
Based on the improved trade balance, the current account showed a deficit of $1.1 billion in the first five months, down from $3.3 billion a year earlier.
He added that in the coming months, exports are expected to remain around the currently observed level and will benefit from the increase in domestic economic activities and the encouragement of external demand.
Similarly, imports will continue to see increasing momentum in the coming months on assumptions of a stable exchange rate and subdued global commodity prices.
However, economic growth shows a mixed performance. Wheat cultivation almost covered its planned area. In particular, Punjab exceeded the wheat sowing target by 2%.
For the Rabi season 2023-24, the wheat crop has been grown in an estimated area of 8.73 million hectares against the target of nearly 9 million hectares to meet the production target of 32.3 million tonnes.
The LSM sector continues to face contraction due to record high interest rates, rising energy costs and higher input prices.
The auto industry’s performance remains subdued due to huge increases in input prices and tighter auto financing.
Published in The Express Tribune, December 28u2023.
Like Businesses on Facebook, follow @TribuneBiz on Twitter to stay updated and join the conversation.
a href=”https://tribune.com.pk/story/2451355/economy-is-out-of-woods-monthly-outlook”>Source link
