Pakistan's Economy Faces Severe Headwinds with Mounting Deficits, High Inflation
Pakistan's Ministry of Finance (MoF) in its Monthly Economic Update and Outlook said that the economic growth is likely to remain below the budgeted target in FY23 due to devastation caused by floods, the Dawn newspaper reported.
"This combination of low growth, high inflation and low levels of official foreign exchange reserves are the key challenges for policymakers,” alerted the MoF on December 30.
According to the MoF report, the overall fiscal deficit stood at 1.5% of GDP (Pakistani Rs. 1.266 trillion) during July-October 2022-23 as compared to 0.9% of GDP (Rs.587 billion) last year.
The fiscal deterioration was because of higher expenditure growth on the back of higher markup payments while the government is facing the unprecedented challenge of providing relief to people in flood-hit areas.
It said the average Consumer Price Index (CPI) in the first five months (July-November) of FY23 remained 25.1% compared to 9.3% in the same period last year. “It is expected that CPI inflation will remain in the range of 21-23%," it said.
The current account posted a deficit of $3.1 billion for July-November FY23 against a deficit of $7.2 billion last year, mainly due to an improvement in the trade balance. The current account deficit (CAD) shrank to $276 million in November as against $569 million in October.
Talking about the industrial sector, the MoF also conceded downward trends. Industrial activity, measured by the large-scale manufacturing (LSM) index output, came in somewhat lower than expected in October as the sector was the most exposed to external conditions, the newspaper reported.
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