FeaturedNationalVOLUME 17 ISSUE # 52

A gloomy picture

The Finance Ministry has projected a gloomy picture of the economy after devastating floods in the country. It is also not very hopeful about inflation, which is the biggest issue of the public. It means people cannot expect relief anytime soon and they will continue to suffer in the coming weeks and months.

The government anticipates Consumer Price Index (CPI) inflation to remain in the range of 21-22.5pc and explained that higher than-expected inflation and the tight monetary policy stance of the State Bank of Pakistan were also affecting the growth. In its Monthly Economic Update & Outlook, the ministry warned of tough economic conditions and increasing fiscal challenges because of expenditure overruns during the current fiscal year (FY23). “In Pakistan, the economic environment is challenging due to damages caused by floods,” it noted.

The report put fiscal deficit in the first two months (July-August) of the current fiscal year at 0.9pc of GDP or Rs672 billion against 0.7pc of GDP or Rs462bn last year and forecast that large-scale relief and rehabilitation requirements resulting from the catastrophic flood posed significant challenges to fiscal consolidation efforts. “Since the government needs to allocate higher resources for the rescue and rehabilitation of flood victims and the rebuilding of infrastructure, there will be a significant pressure on overall expenditures,” the report said, adding that an expected slowdown in economic activity and growth due to the devastation triggered by the floods may impact domestic resource mobilisation efforts.

It noted that the agriculture sector had been particularly hard hit by the destruction brought on by the floods, and due to forward linkages, this impact will also be transferred to other sectors of the economy, thus changing the overall economic outlook. Already, since the start of the fiscal year, economic activity seems to have fallen to a lower growth path. Further, the slowdown in global economic growth along with higher commodity prices is badly damaging the performance of Pakistan’s main trading partners, it noted.

A slowdown in the large-scale manufacturing (LSM) sector, albeit positive in August, and higher production costs were the additional contributing factors with negative consequences for growth in the months ahead. In addition, moderation in imports may indicate a slowdown of domestic activities. On agriculture, the report said the production of sugarcane had decreased by 7.9pc to 81.6 million tonnes this year against 88.7m tonnes last year, while rice production declined by 40.6pc to 5.5m tonnes against 9.3m tonnes last year. Maize production decreased by 3pc to 9.2m tonnes and that of cotton by 24.6pc to 6.3m bales. Production and sales of tractors declined by 36.2pc (7,991 units) and 30.3pc (8,379), respectively, in July-Sept FY23, while the agriculture credit disbursement increased by 31.5pc to Rs384b. During the Kharif season 2022 (April-September), urea and DAP offtake was 3,137,000 tonnes (3.7pc less than Kharif 2021) and 491,000 tonnes— 44.8pc less than Kharif 2021.

The performance of the industrial sector also remained under pressure amid global headwinds and floods. The stabilisation measures in the form of monetary and fiscal tightening, import compression strategies to correct the imbalances also suppressed LSM by 0.4pc during July-Aug FY23 against the growth of 11.3pc during the same period last year. Eight out of 22 sectors witnessed positive growth, while output of 14 others declined.

During July-September FY23, CPI inflation stood at 25.1pc against 8.6pc during the same period last year. Food inflation rose due to nationwide floods that destroyed crops as well as farm lands. The primary fiscal balance posted a deficit of Rs90bn in July-Aug FY23 against the deficit of Rs37b in the comparable period last year. The first quarter of the current fiscal year ended up with a 17pc growth and a net tax collection of Rs1.634 trillion against Rs1.396tr during the same period last year.

Within total tax collection, direct taxes posted a healthy growth of 41.8pc, followed by federal excise at 11.6pc, customs at 5.1pc and sales tax at 2.7pc. Loans to private sector businesses witnessed an expansion of Rs99.7bn during the first quarter of FY23 against Rs177.4bn last year.

The current account posted a deficit of $2.2b for July-Sept FY23 as against $3.5b last year, mainly due to 2.6pc increase in exports and 12.4pc contraction in imports. The total imports in July-Sept FY23 decreased to $16.4b against $18.7b last year.

Foreign direct investment during the first quarter of the current fiscal year dropped by a massive 47pc to $253.4m against $479.2m last year. Foreign private portfolio investment registered a net outflow of $12.1m during July-Sept FY23. Foreign public portfolio investment recorded a net outflow of $18.2m.

The total foreign portfolio investment recorded an outflow of $30.3m during July-Sept FY2023 as against an inflow of $961.6m last year. Total foreign investment during July-Sept FY23 reached $223.1m against $1.358bn last year, down by 600pc. In July-Sept FY23, workers’ remittances were recorded at $7.7b against $8.2b last year.

The government has taken steps to put the economy on the path to economic recovery. However, it has affected the common people badly. The previous PTI government had lost popularity because of high prices of food. However, the coalition government has broken all records of inflation. It will have to take urgent measures to reduce prices of food, essentials and electricity, otherwise it will not be able to defeat Imran Khan’s party in the next election.