ISLAMABAD - The Ministry of Finance has noted that the ongoing political unrest is not only creating governance problems but also intensifying the uncertainty depicted by exchange rate depreciation which will, in turn, impact the cost of production. The ministry has projected that inflation would remain on higher side at around 20 percent in the current month (July). “Inflation has accelerated more than 20 percent and may continue to remain high in the immediate short run,” the Ministry of Finance noted in its ‘Monthly Economic Update & Outlook July 2022’.
The CPI Inflation was recorded at 21.3 percent in June 2022 as against 9.7 percent in the same month last year. According to the ministry projection, inflation in July 2022 may hover around the level observed in June. International inflationary impulses in the US dollar became amplified by the accelerated depreciation of the rupee against the US dollar. International spike in dollar rates and domestic uncertainty depreciated Pakistani rupees to almost 11.5 percent in the first 20 days of FY2023. These cost-push inflation drivers feed into the domestic retail prices. Up to May 2022, the government policies among which the use of taxes and subsidies, temporarily and partially postponed their pass-through into the CPI. Furthermore, usually in the month of July, a positive seasonal factor appears to contribute upwards to the MoM inflation rate. All these critical factors will influence domestic inflation.
“High international prices are still adversely affecting external positions even in the start of FY 2023. There was an intense need for the successful completion of the IMF 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF). The government has taken all difficult decisions to make reviews successful, reaching a staff-level agreement for a $1.17 billion loan tranche,” the ministry noted. It added that halting investment decisions is further making the outlook blurry.
It warned that the unprecedented rains causing floods may hamper cotton and other crops. The input situation remained favourable during the period except for weather conditions. The agriculture sector will continue to grow on account of supportive government policies.
On the external sector, the ministry of finance stated that it is expected that with government appropriate policies, imports will fall, while the continued decent performance of exports of goods and services as well as workers’ remittances will bring current account deficit to a manageable level. According to BOP data, the trade deficit in goods and services was recorded at $4.6 billion in June 2022. Trade balance will revert back to lower levels in July 2022. It is expected that remittances will continue to remain strong.
