ISLAMABAD    -    The Ministry of Finance has noted that the ongoing political unrest is not only creating governance problems but also intensifying the uncertainty depicted by exchange rate depreciation which will, in turn, impact the cost of produc­tion. The ministry has projected that in­flation would remain on higher side at around 20 percent in the current month (July). “Inflation has acceler­ated more than 20 percent and may continue to remain high in the im­mediate short run,” the Ministry of Finance noted in its ‘Monthly Eco­nomic Update & Outlook July 2022’.

The CPI Inflation was recorded at 21.3 percent in June 2022 as against 9.7 percent in the same month last year. According to the ministry pro­jection, inflation in July 2022 may hover around the level observed in June. International inflationary im­pulses in the US dollar became am­plified by the accelerated depreci­ation of the rupee against the US dollar. International spike in dollar rates and domestic uncertainty de­preciated Pakistani rupees to almost 11.5 percent in the first 20 days of FY2023. These cost-push inflation drivers feed into the domestic retail prices. Up to May 2022, the govern­ment policies among which the use of taxes and subsidies, temporarily and partially postponed their pass-through into the CPI. Furthermore, usually in the month of July, a posi­tive seasonal factor appears to con­tribute upwards to the MoM infla­tion rate. All these critical factors will influence domestic inflation.

“High international prices are still adversely affecting external posi­tions even in the start of FY 2023. There was an intense need for the successful completion of the IMF 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). The government has taken all difficult decisions to make reviews success­ful, reaching a staff-level agreement for a $1.17 billion loan tranche,” the ministry noted. It added that halting investment decisions is further mak­ing the outlook blurry.

It warned that the unprecedent­ed rains causing floods may ham­per cotton and other crops. The in­put situation remained favourable during the period except for weath­er conditions. The agriculture sector will continue to grow on account of supportive government policies.

On the external sector, the min­istry of finance stated that it is ex­pected that with government ap­propriate policies, imports will fall, while the continued decent perfor­mance of exports of goods and ser­vices as well as workers’ remit­tances will bring current account deficit to a manageable level. Ac­cording to BOP data, the trade defi­cit in goods and services was re­corded at $4.6 billion in June 2022. Trade balance will revert back to lower levels in July 2022. It is ex­pected that remittances will con­tinue to remain strong.