ISLAMABAD-The ministry of finance has noted that Pakistan is currently confronted with the challenges like high inflation, low growth, and low levels of official foreign exchange reserves.
“The recent political and economic uncertainties both are causing inflationary expectations upward. The CPI inflation on YoY basis for January 2023, is forecasted in the range of 24-26 percent,” the ministry noted in its monthly report. Inflationary pressure is expected to calm down gradually due to flood-led damages which have disrupted the supply of essential items.
Rising prices of onions and wheat both are the key factors responsible for affecting the general price level. International commodity prices are showing a downward trend on a YoY basis and its impact will ultimately be transmitted into domestic prices with some lags after adjusting the currency devaluation. While the government kept the administered prices at their current level to stabilize the overall prices but post floods persistent shortfall of essential crops is preventing inflation to settle down.
The ministry of finance noted that expenditures would increase and revenue collection would be affected. “Rising interest payments due to increase in domestic and foreign interest rates as well as flood-related spending can put extensive pressure on overall spending”. Furthermore, despite massive import compression. FBR tax collection has increased by more than 17 percent, yet it has registered a shortfall of Rs 217 billion in the first half of the current fiscal year. In light of current global and domestic economic conditions, FBR facing a difficult task in meeting the full-year target.
The fiscal deficit during Jul-Nov FY2023 has been contained to the same level of 1.4 percent of GDP (Rs1169 billion) as it was recorded in the comparable period last year. Meanwhile, the primary balance improved during Jul-Nov FY2023 and posted a surplus of Rs 511 billion (0.6 percent of GDP) against the deficit of Rs 36 billion (-0.1 percent of GDP) last year. The net federal revenues grew by 34.7 percent to reach Rs 1996 billion during Jul-Nov FY2023 against Rs 1482 billion in the comparable period of last year. Due to a considerable collection under the SBP profit and petroleum levy, non-tax revenue saw a remarkable increase of 58 percent. Similarly, tax collection grew by 16.1 percent during the period under review. Thus, both tax and non-tax revenues have contributed to achieving significant growth in revenues. Total expenditure increased by 16.4 percent to Rs 3367 billion during Jul-Nov FY2023 against Rs 2894 billion in the same period of last year. Within the total, current expenditures grew by 22.6 percent owing to an 83.6 percent increase in markup payments. While PSDP expenditures slide down to Rs 130 billion during Jul-Nov FY2023 against Rs 252 billion in the comparable period of last year.
“In the absence of adequate fiscal space to mitigate the impact of various shocks on the economy, the government’s options would be to reallocate expenditures toward critical areas while improving spending efficiency; and raising revenue by broadening the tax base, making the tax system more progressive, and reducing tax avoidance and evasion”.
The ministry stated that current account balance slightly deteriorated in the month of December. This was mainly due to an increase in primary income payments and a decrease in remittances. It is expected that in January these payments would return to normal levels. Together with the expected improvement in the trade balance due to prudent government measures, the current account deficit may decline in January and stabilize during second half of FY2023. Exports are constrained by domestic production issues related to the slowdown of demand in the main export markets and high domestic production costs. Imports are currently constrained by sluggish domestic demand and administrative measures to protect the official foreign reserves level. Since no immediate reversal of these developments is envisaged, the trade balance may further stabilize or further improve somewhat in the upcoming month.