Major indicators deteriorated in challenging fiscal year 2022-23

ISLAMABAD-The fiscal year 2022-23 was challenging on the economic front as the major indicators, including GDP growth, inflation rate, budget deficit, foreign exchange reserves, currency depreciation and foreign investment, deteriorated.
In the last FY2023, the inflation had broken all previous records. Average CPI inflation for FY2023 stood at 29.2 percent compared to 12.2 percent during the same period of last year. Inflation was recorded at 29.4 percent on a year-on-year basis in June 2023 as compared to 21.3 percent in June 2022 whereas it increased to 38 percent in the previous month (May this year). Inflation had touched all time high 38 percent in May this year.
The budget deficit has also widened. During Jul-May FY2023, the fiscal deficit was recorded at 5.5 percent (Rs 4,652.2 billion) against 5.2 percent (Rs 3,468.5 billion). Net federal revenues grew by 24.4 percent to Rs.4,166.6 billion in July-May FY2023 against Rs 3,349.5 billion last year. The major contribution in revenues came from a 31 percent increase in non-tax collection on account of higher collection from petroleum levy during the period under review. Besides, other components like markup (PSEs & others, dividends, passport fees, royalties on oil/gas), and windfall levy against crude oil also contributed to increasing the non-tax collection. In absolute terms, non-tax revenues increased to Rs 1,476.1 billion during Jul-May FY2023 from Rs 1,124.1 billion last year. Net provisional tax collection, on the other hand, grew by 16.6 percent to stand at Rs 7,169.1 billion during Jul-Jun FY2023 against Rs 6,148.5 billion last year. In total, current expenditure grew by 22 percent to Rs 8,337.8 billion during Jul-May FY2023 against Rs 6,843.8 billion last year. The entire increase in current spending stemmed from an 80 percent rise in markup payments owing to a higher policy rate. In contrast, non-markup spending was reduced by 12 percent largely due to a 31 percent decline in subsidies and a 32 percent decrease in grants. However, a notable increase has been witnessed in grants for BISP and poverty alleviation funds indicating the government’s commitment to pro-poor spending while creating fiscal space by reducing nonproductive spending. With a decline in non-mark-up spending, the primary deficit has been narrowed down to Rs.112.0 billion during Jul-May FY2023 from Rs.945.3 billion recorded last year.
However, the current account deficit improved. The current account posted a deficit of $2.6 billion for FY2023 as against a deficit of $17.5 billion last year, mainly due to contraction in imports. However, the current account posted a surplus of $334 million in June 2023 as against a deficit of $ 2321 million in the same month last year, largely reflecting an improvement in trade balance. Exports on fob declined by 14.1 percent during FY2023 and reached $27.9 billion ($ 32.5 billion last year). Imports on fob declined by 27.3 percent during FY2023 and reached $52.0 billion ($ 71.5 billion last year). Resultantly the trade deficit (FY2023) reached to $24.1 billion as against $39.1 billion last year. Exports in services during FY2023 increased by 2.7 percent to $ 7.3 billion as against $7.1 billion. The imports in services decreased by 38.0 percent to $ 8.0 billion as compared to $12.9 billion in the same period last year. The trade deficit in services contained by 87.7 percent to $0.7 billion as against $ 5.8 billion same period last year. As per PBS, during FY2023, exports stood at $27.7 billion ($ 31.8 billion last year), declined by 12.7 percent. The total imports in FY2023 decreased to $55.3 billion ($80.1 billion last year), thus declined by 31.0 percent.
FDI reached $1455.8 million during FY2023 ($1935.9 million last year) decreased by 24.8 percent. FDI received from China stood at $432.2 million (29.7 percent), Japan $183.0 million (12.6 percent), UAE $180.1 million (12.4 percent) and Switzerland $ 134.0 million (9.2 percent of total FDI). Power sector attracted the highest FDI of $622.6 million (42.8 percent of total FDI), financial business $275.1 million (18.9 percent), and oil & gas explorations $135.1 million (9.3 percent). Foreign private portfolio Investment has registered a net outflow of $ 18.2 million during FY2023. Foreign public portfolio investment recorded a net outflow of $ 1008.0 million, on account of Sukuk repayment in December 2022. The total foreign portfolio investment recorded an outflow of $ 1026.2 million during FY2023 as against an outflow of 87.7 million last. Total foreign investment during FY2023 recorded an inflow of $ 429.7 million as against $ 1857.8 million last year. In FY2023, workers’ remittances were recorded at $27.0 billion ($31.3 billion last year), down by 13.6 %. MoM, remittances increased by 3.9% in June 2023 ($ 2.2 billion) as compared to May 2023 ($2.1 billion).
Pakistan’s total liquid foreign exchange reserves increased to $ 14.1 billion on July 12, 2023, as with the SBP’s reserves raise significantly to $8.8 billion on account of $ 3.0 billion disbursement from friendly countries ($2 billion from Saudi Arabia and $1 billion from UAE) and $1.2 billion from IMF under Stand-By Arrangement. Whereas commercial banks’ reserves remained at $ 5.3 billion.
Large Scale Manufacturing remained on a negative trajectory with the observed decline of 9.87 percent during Jul-May Fy2023 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 YoY basis, LSM nosedived by 14.37 percent in May 2023 and on MoM basis, it grew by 5.88 percent.

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