Pakistan’s Ministry of Finance (MoF) forecasts that inflation will remain high, ranging between 21 and 23 per cent in 2023, as the country’s fiscal deficit widened by more than 115 per cent between July and October of the current fiscal year, 2022-2023.
“Due to the devastation caused by the floods, economic growth in FY23 will likely remain below the budgeted target. The critical challenges for policymakers are the combination of low growth, high inflation and low levels of official foreign exchange reserves,” according to the Monthly Economic Update and Outlook report, released on Friday.
According to a report prepared by Pakistan’s MoF’s Economic Adviser’s Wing (EAW), the government’s fiscal deficit will be 1.5 per cent of GDP from July to October 2022, up from 0.9 per cent of GDP in 2021.
Higher expenditure growth caused by higher mark-up payments resulted in fiscal deterioration. In the midst of this, the Pakistani government faces the challenge of providing relief to flood-affected areas.
According to the EAW report, the average Consumer Price Index (CPI) in the first five months (July-November) of FY23 remained at 25.1 per cent, compared to 9.3 per cent in the same period last year.
According to the Dawn report, the current account posted a deficit of USD 3.1 billion for July-November FY23, compared to a deficit of USD 7.2 billion last year, primarily due to an improvement in the trade balance.
The current account deficit fell from USD 569 million in October to USD 276 million in November.
Despite acknowledging economic problems, Pakistan’s Finance Minister Ishaq Dar assured investors on Friday that “there is no way Pakistan will default.”
“We are in a difficult situation. We don’t have the USD 24 billion in foreign exchange reserves that our (previous) government left behind in 2016. That, however, is not my fault. It’s the fault of the system,” Darr told investors at a ceremony marking the listing of Pakistan’s first developmental real estate investment trust scheme on the stock exchange.
Dar also chastised “pseudo-intellectuals” for raising the prospect of a sovereign default despite the fact that the country had already paid off its USD 1 billion Islamic bonds earlier this month.
According to a recent report by The Dawn, the incumbent Pakistan government avoided focusing on growth for the fiscal year FY23, resulting in a drop in growth.
Pakistan’s government has failed to achieve price and financial stability despite sacrificing growth, according to the bank’s annual report.
In its annual report, Pakistan’s central bank stated that countries prioritising growth over price and financial stability cannot “sustain growth and have repeated boom-bust cycles followed by the financial crisis,” citing international experience.
