Inflationary, external risks adding to macroeconomic imbalances

The government has taken various steps and administrative measures to counter the downside risks to the economy. Although economic recovery is underway, the domestic and international scenario is changing over the course of time, revealed the Monthly Economic Update and Outlook for March 2022, issued by the Ministry of Finance on Monday. “Thus, inflationary and external sector risks are building macroeconomic imbalances,” it said.

“International commodity prices are expected to rise further because of mounting geopolitical tensions but their passthrough impact into domestic consumer prices will be contained by the current and newly designed government measures and relief packages.” It pointed out that year-onyear inflation was expected to remain in double digits for some time. The main economic indicators remained strong, although some slowdown in growth was observed in February 2022.

According to reports, the global economy is currently facing three challenges (financial sanctions, commodity prices and supply-chain disruptions) due to the ongoing war between Russia and Ukraine. These challenges have fueled global inflation and downgraded the growth outlook in most countries. During the July-February period of the ongoing fiscal year, Pakistan’s current account deficit was recorded at $12.1 billion, said the report. “In addition, economic growth in Pakistan’s main trading partners continues to remain above the trend, although some slowdown may be witnessed due to uncertainties surrounding the recent geopolitical tensions and continued increase in international commodity prices,” the report said.

It predicted an uptick in exports in March 2022, backed by the implementation of exportfriendly policies. Exports would also benefit from the real effective exchange rate, it said. Imports will probably return to a level that is more in line with the domestic economic activity and the international commodity price levels, the report predicted. As a result, the trade balance may deteriorate in March 2022 as well. However, it cautioned that the geopolitical risks continued to persist. In March, workers’ remittances are expected to revert to normal levels. Taking those factors into account, as well as some other components, the current account deficit in March is expected to stay well below the unsustainable levels observed during August 2021 to January 2022.

Fiscal accounts witnessed significant pressure during the first seven months of current fiscal year due to rising expenditures under grants and subsidies. On the revenue side, the Federal Board of Revenue was able to achieve more than 65.2% of its annual tax collection target during the first eight months of the ongoing fiscal year. The government announced a relief package for the masses to offset the impact of increasing oil prices by reducing the sales tax rate and petroleum development levy. Pakistan’s economic performance continues to be on an upward trajectory with growth target of around 5% in the current fiscal year, the report said. A