ISLAMABAD - The Ministry of Finance has noted that revival of economic activities has started within the country, however, unprecedented increase in international commodity prices is putting pressure on domestic prices as well as on the Pakistani rupee. 
“The government’s pro-growth initiative along with efficient monitoring of prices is expected to provide relief to general public,” the ministry said in its monthly Economic Update & Outlook October 2021. It added that economic recovery accelerated since March 2021 is expected to continue. The economic expansion may go along with a current account deficit. It is normally recognized that emerging and developing countries run current account deficits, financed by financial inflows from developed nations.
The persistent rise in international oil prices, exchange rate pressure and the rise in domestic economic activities are contributing in rising import demand. Given these recent dynamics, it can be expected that in the following months, imports may remain at current high levels. Therefore, the recent government steps in terms of monetary policy and the measures taken to discourage unnecessary imports will be helpful in containing the strong expansion recorded in recent months.
As expected, exports of goods and services crossed the $3 billion mark, helped by the ongoing strong recovery in Pakistan’s main export markets, the momentum in domestic economic dynamism and specific government policies to stimulate exports. These dynamics are expected to keep exports above the $ 3 billion mark in the months ahead. As a result of these events, the trade deficit of goods and services retreated from the level observed in August and is expected to first stabilize and then decline in the months ahead.
As remittances and the other components of secondary income, as well as primary income balance stabilized in September, the decline in the trade deficit was reflected in contained current account deficit. If remittances stay roughly at current levels in the coming months, then taking into account the other income inflows having relatively minor share, the current account deficit would be driven by the trade deficit which will be stabilized and improved thereafter, but these developments will be monitored closely.
The fiscal deficit in Jul-Aug FY2022 was recorded at 0.9 percent of GDP, the same as in the comparable period of last year. In absolute terms, it stood at Rs 462 billion in Jul-Aug FY2022 against Rs 415 billion recorded last year.
During the first two months of FY2022, the primary balance showed a deficit of Rs 37 billion, compared to a surplus of Rs 69 billion in the comparable period last year. Net revenue receipts increased by 7.1 percent to Rs 470 billion in Jul-Aug FY2022, compared to Rs439 billion last year. The sharp rise in FBR tax collection during the period under review contributed significantly to the increase in revenue receipts. PSDP spending jumped by 18.9 percent to Rs 63 billion in Jul-Aug FY2022, compared to Rs 53 billion in the same period of last year.
FBR provisional net tax collection grew by 38.2 percent to Rs 1396.4 billion in Q1 FY2022 against Rs 1010.2 billion in the same period of last year. The net collection exceeded its quarterly target by 15.3 percent. In absolute terms, FBR collected Rs.186 billion higher revenues than the target fixed for Q1 FY2022. A number of initiatives have been taken in this regard. FBR is implementing digitalization and automation of various processes involved in revenue collection. The launching of Point of Sale (POS) and Track & Trace system are examples of such initiatives. Furthermore, FBR has taken number of measures to promote economic activities through maximum taxpayer facilitation. All this augurs well for sustaining the momentum of tax collection achieved during Q1 FY2022. FBR is on course for achieving the revenue target set for FY2022.
Since May 2021, YoY inflation has observed downward trend till September 2021. On the other hand, the government is committed to ensure the smooth supply of essential commodities in domestic food markets to protect livelihood of the people. If there would be no additional impulses in October, then YoY inflation may decelerate. All in all, the central forecast for October and beyond shows resumption of the downward trend in YoY inflation, but within a broad uncertainty range. YoY inflation rate in October is expected to settle below the level observed in September, but the probability range is wide.
The preliminary production estimates of major Kharif crops 2021 are encouraging as reviewed in the 17th meeting of Federal Committee on Agriculture (FCA) held on October 7th, 2021. The inputs availability will remain satisfactory as more certified seeds for wheat and other crops will be ensured for upcoming Rabi 2021-22 season, thus it is expected that in the absence of any adverse climate shock, agriculture sector will surpass its target of 3.5 percent.