Pakistan’s Ministry of Finance in its monthly economic review and forecast report has observed that the economic growth outlook for the current fiscal year shows significant signs of improvement, however, the third wave of the COVID19 carries some downside risks.
The report indicates that fiscal indicators for the period from July to January 2021 show that fiscal consolidation policies have helped maintain fiscal discipline, increase revenue and control spending of the government. On the revenue side, FBR tax collection continues to improve, exceeding the eight-month target by 17 billion rupees.
The eight-month analysis depict that the financial front will remain on track and that the current fiscal year will end up on track to meet its objectives. However, the rise in COVID infections and associated containment measures can pose some challenges, especially as the spending side can come under pressure.
In its monthly economic outlook report, the ministry highlighted that economic recovery expectations are strengthening owing to greater business confidence, as evidenced by industrial growth. Therefore, the government’s fiscal stimulus has improved the economic and social prospects. Hence, the State Bank of Pakistan, in its latest monetary policy statement, expects higher growth in fiscal 2021 compared to its previous forecast.
Since the third wave of the epidemic carries the risk of worsening the situation, timely government action, combined with public opinion, taking into account the rhetoric of military operations, will help continue the economic recovery, while slowing down pressures. inflationary and maintains external equilibrium.
In terms of inflation, recent events show that the downward trend observed in recent months stopped in February, which is why the inflation rate increased both annually and monthly. Recently, the government has adopted policy measures to improve the performance of certain sectors of the food market and strengthen the supply chain for certain foods. These interventions help contain inflationary pressures in these markets. These measures have mitigated the direct impact and the expected effects of the second round on other components of the CPI. On the other hand, world commodity prices have been on an upward trend lately. Over the past four months, world oil and food prices have continued to rise. From February to April 2020, world commodity prices decreased and, during this period, the level of the CPI fell.
According to the report, this lower base effect could temporarily lead to higher annualized inflation in the coming months. However, government measures to ensure security of supply, especially as part of the Ramadan package, will ease inflationary pressures. The report added that it is expected to remain between 7.9 and 9.5 percent next month.
In agriculture, the risks of a decline in cotton production will hamper specific growth in the agricultural sector, according to the report.
The report indicated that LSM’s annual growth rate has remained positive since July 2020. The increase in manufacturing activity is in line with the strong cyclical rebound observed in Pakistan’s main trading partners. This recovery is expected to continue in the coming months, without a further escalation of COVID-19 that may require restrictions on economic activity.
The report also confirmed that some of the data underlying the February Monthly Economic Index (MEI) is still temporary and may be revised next month. But, judging by the available data, in February MEI shows strong growth. Given the risk of a third wave of decline, if the Middle East index stabilizes in the coming months, economic growth for the current fiscal year is expected to exceed the target.
Regarding the external sector, the report confirms that, in the period from July to February 2021, exports of goods and services in the balance of payments totaled US $ 19.9 billion, compared to US $ 20.3 billion. . for the same period last year. Imports of goods and services reached 37.3 billion this year, up from 35.7 billion last year, an increase of 4.5%. However, in February 2021, there was an increase of 3.2% year-on-year.
Exports are expected to increase in line with the government’s export-oriented policies, while imports are also expected to increase as a result of the recovery of the local economy and recent
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