The Ministry of Finance said on Friday that economic growth was slowing down to 4%, as the economy confronted inflation risks and external sector pressures, endorsing the viewpoint that had long been held by the international lenders.
In its monthly Economic Outlook for April, the economic advisory wing of the finance ministry also projected elevated inflation levels, forecasting a reading of up to 12.5% for the current month.
“Pakistan’s economy is on a growth trajectory confronting risks of inflation and external sector pressures,” underlined the report.
For the last two months, the growth in economic activity is fluctuating around 4%, according to the finance ministry. It is for the first time that the ministry has explicitly indicated a slowdown in the growth rate, as earlier it was sticking to around 5% growth for the ongoing fiscal year.
International financial institutions have already given 4% to 4.3% growth projections against the previous government’s target of 4.8%.
The finance ministry said that the monthly economic indicator remained strong, although some slowdown in growth since February 2022 had been observed.
Economic activities in Pakistan’s main trading partners continue to remain slightly above trend, and some slowdown has been observed due to geopolitical uncertainty and surge in commodity prices, it added.
If these tensions continue, Pakistan’s growth may be affected as well.
The ministry said that the inflationary and external sector risks were building macroeconomic imbalances.
International commodity prices are expected to rise further and the pass-through of the increase in global commodity prices is somewhat contained due to government measures. Still it is expected that the CPI inflation will increase and remain in double digits in April 2022, it said.
Based on currently available information, the year-on-year inflation for April may remain within a range of 11.5% to 12.5%, it added.
According to the State Bank of Pakistan (SBP) Amendment Act, price stability is the primary objective of the central bank. But the SBP has failed to achieve its objective and at the same time remains unaccountable for its failure due to a tailour-made law that gives absolute autonomy to the SBP without ensuring accountability.
The finance ministry said that the overall spike in inflation was on account of increase in prices of imported items, as the country was a net importer of items, especially crude oil, pulses and edible oil, which ultimately transmitted into domestic prices.
Upward price movement is further fueled by Russia-Ukraine war, supply chain disruption and recovery of global demand.
The finance ministry said that the April inflation number may also be subject to an upward seasonal effect.
On the other hand, monetary policy has become more restrictive. The measures limit the renewed pass-through of these upswings in international commodity prices, especially oil prices, into domestic final goods prices and production costs.
The high inflation accompanied by monetary policy reaction may temporarily reduce growth prospects in the short run, said the finance ministry.
But in the long run, economic growth and employment are determined by the path of Pakistan’s productive capacity. This requires more productive investment from both foreign and domestic sources.
The ministry said that for April 2022, exports of goods and services were expected to continue their upward trend due to export-oriented policies.
Imports are expected to remain at the level in line with domestic economic activity and international commodity prices. Resultantly, trade deficit is expected to remain around $3 billion in April.
Remittances are expected to remain high as compared to previous months due to the Eid factor. Taking these factors into account, the current account will stay around $1 billion in April.
The country has already booked a $13.2 billion current account deficit in nine months, which is many times more than the $2.3 billion target set by the previous government for the ongoing fiscal year.
The ministry has also officially released the revised forecast of production of all major Kharif crops, which stood higher compared to last year’s production. But the production remained below the official targets.
Cotton production is now projected at 8.3 million bales, far lower than this year’s target. There is a significant increase in production, but wheat production is estimated at 26.8 million tons, showing a decrease of 2.5% over last year (27.5 million tons).
In July-March FY22, foreign direct investment decreased by 2% to less than $1.3 billion.
Published in The Express Tribune, April 30th, 2022.