FeaturedNationalVOLUME 18 ISSUE # 20

Suffering spell to continue

Inflation is at the highest point in the country’s history and all economic indicators spell more miseries for the common people.

According to the finance ministry, inflation rates will remain high in the coming months. The report held the demand and supply equation responsible for the prevailing hike fears. In its monthly inflation report, the ministry said the chances of soaring inflation were still alive. “The stress in demand and supply along with petrol rate hikes in recent weeks could be the driving factors of inflation,” it noted.

The report also feared that the ramifications of recent floods could also be a major reason for a probable increase in inflation. However, the report hoped for an ease in inflation by the end of the current fiscal year. “The government is determined to complete the IMF programme successfully. It intends to ease pressure on forex reserves by reducing the current account deficit,” it noticed.

However, the ministry noted a 10pc decrease in remittances from Jul-Feb. In the first eight months of the current fiscal year, the exports dived by 9.7pc, whereas, imports plunged by 21pc. The current account deficit came down by 68pc along with a 40.4pc reduction in foreign investments. According to the ministry, forex reserves of the SBP were a little more than $ 4bn on March 29 and the dollar was being traded at Rs.283.92.

The report shows that Pakistan’s major debt sustainability indicators have deteriorated during the first half of the fiscal year. The July-December 2022 report showed that the share of external public debt rose in the past six months, while the average time of maturity and period of resetting the interest rates have further shortened. The report showed that the share of external debt in the total public debt rose from 37pc in June to 37.2pc by December, heightening the currency risks simultaneously with the rupee sinking and foreign countries shying away from extending loans.

Overseas workers’ remittances declined by 9.5pc to $2 billion on a year-on-year (YoY) basis in February FY23 as compared with the same month of previous year’s inflow of $2.2 billion. On month-on-month basis, the remittances in February FY23 witnessed an increase of 4.9pc when compared with the inflow of $1.9 billion recorded in January FY23, according to data released by the State Bank of Pakistan.

Exports of Pakistan have decreased by 10pc during July – March, official data revealed. According to the Pakistan Bureau of Statistics (PBS), exports slipped to $21.05 billion during the first nine months of the current fiscal year as compared with $23.35 billion in the same period of the last fiscal year. On the other hand, the country’s import plunged by 25pc to $43.94 billion during the period under review as compared with $58.86 billion in the corresponding period of the last fiscal year.

Therefore, the trade deficit of the country contracted by 35.51pc to $22.9 billion during July – March 2022-2023 as compared with the deficit of $35.51 billion in the same period of the last fiscal year. The contraction in trade deficit may be attributed to restriction imposed by the government in May 2022 on import of luxury and non-essential items. The trade deficit reduced by 60pc to $1.46 billion in March 2023 when compared with $3.63 billion in the same month of the last year. Exports of the country during the month under review recorded a 15pc decline to $2.37 billion as compared with $2.78 billion in the same month of the last year. Meanwhile, the import bill for March plunged by 40pc to $3.83 billion as compared with $6.41 billion in the same month last year.

Foreign direct investment (FDI) in Pakistan stood at $100.9 million in February 2023, dropping by over two times on a MoM basis as compared to $222.6mn in January 2023, data issued by the State Bank of Pakistan (SBP) says. On a yearly basis, the FDI increased by 11.12pc YoY compared to $90.8mn in the same month last year. Within the direct investments, there was an inflow of $120.2mn and an outflow of $19.3mn during the month. The foreign private investment into the country amounted to $106.5mn, which jumped by 27% YoY compared to $83.8mn in February 2022. Under the foreign public investment, all investment was concentrated into portfolio investment worth $5.6mn against the outflow of $1.1mn in January 2023.

Accordingly, the total foreign investment in the review month clocked in at $106.5mn, compared to $230.3mn in January 2023. However, within 8MFY23, FDI plunged by 40pc YoY to $784mn as compared to FDI of $1.35 billion reported in the corresponding period last year. Out of total foreign investment in 8MFY23, the country witnessed an outflow of $513mn, compared to an inflow of $1.3bn.

In March, inflation soared to 35.6pc and the share of the floating rate debt will also substantially increase the already overflowing cost of debt servicing. The only positive indicator was the share of Shariah compliant debt in the government securities which increased from 6.4pc to 9.2pc in the last calendar year.

The Pakistani government has taken several measures to address these challenges, including implementing economic reforms, investing in infrastructure and promoting foreign investment. However, these challenges are complex and require sustained efforts to achieve long-term solutions.