Islamabad-Overall economic outlook shows an optimistic picture of the economic performance in the coming months, while the government expects that CPI inflation will show a declining trend in October and will remain in the range of 21- 22.5 percent as against 23.20 percent during the previous month.
The CPI inflation is declining, rupee has gained stability, current account balance is on improving trend, said the monthly Economic Update and Outlook October 2022 released by the Ministry of Finance here on Sunday. These development indicate that economic activity will remain positive and persistent in coming months, said the report. The declining international commodity prices are expected to offset the inflation spikes that emerged due to domestic supply shocks. Nevertheless, it can be expected that YoY CPI inflation in the month of October will maintain its declining tendency observed in September. It is expected that CPI inflation will remain in the range of 21- 22.5 percent.
The balance of trade in goods and services improved in September 2022. The outlook for October revealed that the trade balance will improve in the coming months on account of import contraction due to a deceleration in domestic economic activities and aggregate demand. However, exports scenario may improve due to revival of infrastructure in flood areas of the country. Remittances are expected to revert back to around the level of $2.7 billion. Therefore, in the baseline scenario, the current account balance is expected to move to equilibrium or even a slight surplus. Moderating inflation also contributes to exchange rate stability, which in the benign case may generate a virtuous inflation-exchange rate cycle. Further, the exchange rate stability requires sound economic fundamentals. Besides inflation, also a manageable current account deficit and guaranteed financing of this deficit by healthy financial inflows are required.
In the baseline short to medium run, helped by sound domestic fiscal and monetary policies, the current account deficit is expected to reduce. A major risk factor, though, relates to the necessary imports to absorb the devastating consequences of the floods. However, downward revision of Pakistan’s main trading partners’ outlook may have a downside risk for exports in coming months. For fiscal sector, catastrophic flood require rehabilitation and massive expenditures which will pose significant challenge for fiscal consolidation. On the other hand, growth prospects have weakened, along with contained economic activities and low demand will impact on resource mobilisation. Thus, FY2023 is moving with challenges, seeking balance policy mix for stabilisation. Further, there is need to enhance the productive capacity and productivity in each sector to substitute imports by domestic production and provide more supply capacity to the foreign markets.
The fiscal deficit during July-August FY2023 has been recorded at 0.9 percent of GDP. In the first two months of the current fiscal year, net federal revenues grew by 12.3 percent. SBP has maintained the policy rate at 15.0 percent. During 1st July – 30 September, FY23 money supply (M2) shows growth of 1.5 percent. The Current Account posted a deficit of $2.2 billion for July-September FY2023. Preliminary estimates of important Kharif crops 2022 reported a decline in the production of sugarcane, rice, maize, and cotton due to floods.
The farm tractors production and its sales declined by 36.2 percent (7,991) and 30.3 percent (8,379), respectively in July-September FY2023. During July-September FY2023, the agriculture credit disbursement increased by 31.5 percent to Rs383.8 billion as compared to Rs291.9 billion during same period last year. During Kharif 2022 (Apr-Sep), urea and DAP off-take was 3,137 thousand tonnes (3.7 percent less than Kharif 2021) and 491 thousand tonnes (44.8 percent less than Kharif 2021). The performance of the industrial sector remained under pressure amid global headwinds and the floods. In Pakistan the stabilisation measures in the form of monetary and fiscal tightening, import compression strategies to correct the imbalances also suppressed the LSM by 0.4 percent during July-August FY2023 against the growth of 11.3 percent in the same period last year. However, on YoY basis, LSM inched up by 0.6 percent while by 3.9 percent on MoM basis.
During July-September FY2023, performance of auto-industry remained subdued due to stabilisation measures. During Jul-Sep FY2023, total cement sales were 9.613 million tonnes, which were 25.04 percent lower than sales of 12.825 million tonnes in the corresponding period of last year.
Sale of petroleum products, during the period, plunged by 23 percent to 4.4 million tonnes from 5.4 million tonnes in the same months of last fiscal year. The fiscal deficit during July-August FY2023 has been recorded at 0.9 percent of GDP (Rs672 billion) against the deficit of 0.7 percent of GDP (Rs462 billion) in the same period of last year.
In the first two months of the current fiscal year, net federal revenues grew by 12.3 percent to Rs528 billion as compared to Rs470 billion in the same period of last year. On the other hand, total expenditures increased to Rs1,320 billion in July-August FY2023 up from Rs1,104 billion in the last year, posting a growth of 19.6 percent. The first quarter of the current fiscal year ended up with a growth of 17.0 percent with a net tax collection of Rs1,633.9 billion against Rs1,396.4 billion in the comparable period of last year. The target for the first quarter tax collection has also been surpassed by Rs24.4 billion. Within total tax collection, direct taxes posted a healthy growth of 41.8 percent followed by FED at 11.6 percent, customs at 5.1 percent, and sales tax at 2.7 percent.
Loans to private sector businesses witnessed expansion of Rs99.7 billion during Q1-FY2023 compared to expansion of Rs177.4 billion during same period last year. The Current Account posted a deficit of $2.2 billion for July-September FY2023 as against a deficit of $3.5 billion last year, mainly due to increase in exports and contraction in imports. The trade deficit (Jul-Sep FY2023) reached to $8.4 billion as against $10.2 billion last year. During July-September FY 2023, exports increased by 2.6 percent to $7.2 billion ($6.9 billion last year). Foreign direct investment reached $253.4 million during July-September FY2023 ($479.2 million last year) decreased by 47.1 percent. Workers’ remittances during the period decreased by 6.3 percent to $7.7 billion from $8.2 billion last year. Pakistan’s total liquid foreign exchange reserves increased to $14.6 billion on October 26, 2022, with the SBP’s reserves now stood at $8.9 billion. Commercial banks’ reserves remained at $5.7 billion.