The Ministry of Finance draws up an optimistic economic report

According to the Average Monthly Economic Indicator (MEI) report released by the Ministry of Finance, there is demand for Pakistani exports from trading partners despite the spread of Omicron – the new variant of Covid-19. “But neither should we ignore the looming risks, including the concerns of policymakers about inflationary effects and the resulting policy response,” he warned. The finance ministry on Monday painted a rosy picture of the country’s economy, estimating average monthly growth at around 5% in the first five months of the current 2021-2022 fiscal year despite inflationary pressures and tightening policies. resulting.

While these developments and policies may control monthly price dynamics, the current pressure on the trade balance is expected to ease, ease the pressure on exchange rates and subsequently stabilize monthly inflation.

However, he said inflation could slow down in the coming months due to lower commodity prices in the world market. In addition, relief can also come from the government’s continued efforts to lower food prices in local markets by following appropriate fiscal and monetary policies.

The MEI is based on the combination of monthly data from indicators correlated with gross domestic product (GDP) at constant prices. “Since March 2021, the MEI is at a higher level compared to previous months. “

This is based on the favorable movements observed in high-frequency macroeconomic indicators such as the growth of LSM, the recovery in Pakistan’s major trading partners and the strong growth of imports of capital goods. The momentum of economic dynamism seen in recent months supported economic activity in November.

According to balance of payments data, exports of goods and services increased by about 13 percent in November compared with October.

They have now settled well above the $ 3 billion mark and are expected to rise further in the coming months to reach a new higher level. This good export performance is the result of several positive factors.

Second, Pakistan’s real effective exchange rate has improved significantly in recent months. Third, the dynamism of the national economy remains strong.

First, although the cyclical position of major trading partners (as evidenced by the ICA) appears to be stabilizing, the underlying growth trend in these countries remains very strong, following the resumption of growth in their potential output.

Fourth, specific government policies aimed at boosting exports are bearing fruit, he said, adding that the main risk factor here is the emergence of a new variant of Covid-19, the effects of which on the economic activity are still unknown.

Data shows that imports of goods and services increased by about 5% in November compared to October.

Strong domestic economic dynamism requires imported energy, capital goods and intermediate goods, necessary for the production process. In addition, the recent increase in international commodity prices has inflated the cost of these imported products.

However, imports could gradually settle to lower levels over the next few months, he predicted. “Imports are indeed likely to respond to higher domestic interest rates, given the historically observed negative effect of interest rates on import demand.”

The government continues to implement measures to limit unnecessary imports and provide domestic alternatives in some markets, especially food products. In addition, the baseline scenario is based on a downward correction in international commodity prices. The report adds that based on these events, the trade deficit will stabilize in the coming months.

The expected developments in export and import activities imply that the trade balance could gradually improve over the coming months and stabilize at significantly lower levels during the second half of the current financial year.

The government’s fiscal consolidation efforts are bearing fruit in terms of improving fiscal accounts. In fiscal year July-October 2022, growth in net federal revenues outpaced growth in spending. As a result, the budget deficit was reduced to 1.1 percent of GDP in the first four months of fiscal 2022 from 1.7 percent of GDP in the same period last year.

Assuming stable remittances, the expected improvement in the trade balance will translate into a decrease in current account deficits, so that these deficits remain manageable and fundable.

The Federal Board of Revenue’s tax revenue is performing remarkably well and continues to exceed its revenue target in the first five months of the current fiscal year.

With prudent expenditure management and an effective revenue mobilization strategy, the overall budget deficit is expected to remain at a reasonable level.

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