ISLAMABAD - The Ministry of Finance has noted that rebound in economic activity is expected to continue in coming months on account of reopening of economic activities and acceleration in vaccination process. 

“Pakistan economy has shown significant signs of economic recovery with fast resumption of economic dynamism. In recent budget 2021-22, government has taken growth-oriented initiatives and will continue to follow the positive reform momentum which will help to boost the competitiveness of Pakistan’s economy and lay a strong foundation for a more robust, inclusive and sustainable recovery,” the Ministry said in its Monthly Economic Update & Outlook June 2021. 

It stated that inflation rate would remain on the higher side in ongoing month of June. “It is expected that inflation in June 2021 to settle within probability margins of (8.8 – 10.2 per cent)”.

Pakistan’s inflation is mainly depandent on fiscal and monetary policies, international commodity prices, the USD exchange rate, seasonal factors and economic agents expectations concerning the future developments.

The expected inflation for June can be decomposed into two effects: a base effect and new MoM price impulses. If in June 2021 no new MoM price impulses would occur, the YoY inflation rate would settle around 9.8 per cent.

It is expected that a deceleration will occur as compared to May 2021.

In June, new price impulses may come mainly from recent increase in international food and oil prices, following the observed strong recovery of the world economy. But due to Government interventions, the pass-through into domestic price is expected to be limited.

The fiscal consolidation efforts continue to remain on track throughout the year. The successful implementation of these measures has improved the fiscal discipline.

The fiscal deficit is 1.1 percentage points lower than the last year and recorded at 4.2 per cent of GDP during July-April FY2021.

With continuity in fiscal consolidation efforts, it is expected that the fiscal deficit for the entire fiscal year will remain within the target. For FY2022, the fiscal deficit is budgeted to be at 6.3 per cent of GDP. On revenue side, FBR tax collection have increased around 18 per cent and surpassed the target set for 11 months of current fiscal year.

It is expected that FBR would be able to improve the tax collection significantly above the level achieved last year.

Economic growth is accelerating in the last quarter of the current FY. This is expected to continue the recently observed positive trend in imports of goods and services.

These imports may exceed the level of previous month. Fortunately, the growth momentum is also reflected in an expected strengthening of the export performance.

Exports of goods and services are expected to exceed $ 3 billion in June 2021. With imports expected to be about double the level of exports, the trade balance may settle at around $ 3 billion.

The trade deficit together with the structural deficit in the Primary Income Balance (on average 0.4 billion USD per month over the last 10 months) is largely financed by the inflow of Remittances (on average 2.43 billion USD per month in the last 11 months) and other Secondary Income receipts from abroad (on average 0.35 billion USD over the last 10 month).

Taking all these into account, the current account balance is expected to show a deficit of around $ 0.5 billion by the end of the current fiscal year.

In the regime of market-based exchange rate, a depreciation of 1.4 per cent occurred in week, presently exchange rate is 157.05.

The market adjustment of exchange rate thus has not put any pressure on foreign reserves and it is expected that in near future foreign reserve will maintain its adequacy level.

The inputs availability for Kharif crops is satisfactory and it is expected that the agriculture sector will continue to perform well on account of continuing support of the government to the sector.

In July-May FY2021, FDI recorded at $ 1,751.7 million ($ 2,422.7 million last year) while total foreign portfolio investment registered an inflow of $ 2,172.9 million during July-May FY2021.

FDI received from China$ 728.2 million (41.6 percent of total FDI), Hong Kong $138.1 million (7.9 per cent) and UK$ 130.5 million (7.4 per cent). Power sector attracted highest FDI of $ 856.1 million (48.9 per cent of total FDI), financial business FDI $226.7 million (12.9 per cent) Oil & Gas exploration$ 206.2 million (12.1 per cent) and Electrical Machinery $ 111.6 million (6.4 per cent).

The FDI had been hit hard globally by the pandemic. To make more conducive business environment the present government has provided relief to manufacturing and taken many measures for ease of doing business which are duly acknowledged by the World Bank.