Pakistan’s economic path since its inception in 1947 has been marked by a dynamic interplay of growth, volatility, and decline, reflecting a complex narrative shaped by both internal and external factors. From its early years of rebuilding and modest industrialization to periods of significant economic expansion, the nation’s journey has been influenced by a variety of forces.
(more…)Tag: economic growth
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Pakistan’s high growth threatened by fiscal imbalances
ISLAMABAD: The ministry of finance on Tuesday said the high economic growth of Pakistan may not sustainable due to macroeconomic imbalances.
In its monthly review, the ministry said Pakistan is currently facing several severe challenges: accelerating inflation, high external deficits, exchange rate depreciation, declining foreign exchange reserves and mounting uncertainty.
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On the other hand, economic growth remains relatively high, but in the presence of macroeconomic imbalances may not be sustainable.
The primary contributors of increasing inflation are the surge in international commodity prices and the massive exchange rate depreciation.
In fact, the depreciation of the rupee both against the US dollar and on a trade weighted basis against the currencies of Pakistan’s main trading partners is primarily reflection of inflation differential between Pakistan and its main trading partners.
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Further relatively high domestic inflation is compensated by Rupee depreciation. However, currency depreciation itself feeds into higher domestic inflation.
In this sense, Pakistan is caught into a vicious inflation/currency depreciation spiral. In the short run a predicament to stop this cycle is to pursue restrictive fiscal and monetary policies, coupled with policies and announcements that restore market agent’s confidence.
In the longer run, Pakistan’s main problems can be solved by designing a credible sustainable future economic trajectory that inspires consumers and investors’ confidence. Economic decisions are based on expectations about the future economic path as well as on the degree of certainty/confidence of development prospects.
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An important component of such process is supply oriented policies. Pakistan’s propensity to invest is much lower compared to high growing emerging market and developing countries.
Accelerating the share of Gross Fixed Capital Formation in GDP would create additional production capacity to meet the increasing demand of consumers and producers. Such supply-oriented framework designed to reallocate the use of national income from consumption to investment expenditures, may be accompanied by suitable demand management policies.
The ministry said that fiscal deficit in the first nine months has increased to 3.8 percent of GDP against 3.0 percent recorded in the same period last year.
An increase in deficit has been observed on account of the higher expenditures due to the rise in subsidies and grants. It is expected that the expenditure side would come under further pressure in the remaining months of the current fiscal year.
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On the revenue side, tax collection currently showing a remarkable performance by posting a growth of 29 percent during the first ten months of the current fiscal year.
The first ten months’ data shows that the revenue collection has surpassed the target by Rs.237 billion. This is despite tax relief measures which have impacted revenue collection by approximately Rs 73 billion just in the month of April 2022.
FBR has taken various policy and administrative measures which paid off in terms of improved tax collection during the current fiscal year. It is expected that with the current growth momentum, FBR would be able to achieve its target during FY2022.
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Prime Minister emphasizes out-of-box solution for economic growth amid COVID
ISLAMABAD: Prime Minister Imran Khan has emphasized out-of-the-box solutions are required for economic growth in these crucial times.
“COVID-19 has adversely impacted the world economy and of Pakistan too,” he said while chairing a meeting of the Finance and Economy Think-Tank on Saturday.
He stated that from day one, the government adopted a strategy to maintain a balance between sustaining economic activity and protecting the masses from infectious disease of Covid-19.
Imran Khan emphasized that prime focus is on providing relief to the poor segment of society through targeted subsidies.
He stated that Ehsaas is the flagship program of the government to alleviate poverty and requires expansion along with a strategy to reach the needy people.
The prime minister highlighted that a substantive package has been announced for the construction and housing sector that aims at increasing much needed employment opportunities and economic stimulus as well as adding to the inventory of affordable housing for the poor.
The prime minister highly appreciated the proposals presented by the Think-Tank regarding banking and finance, further improving the Ehsaas program and facilitating SMEs.
He directed that regular feedback of the Think-Tank be provided to him on various ongoing initiatives, policies and programs of the government.
Advisor on Finance Dr. Abdul Hafeez Sheikh, Advisor on Institutional Reforms Dr. Ishrat Hussain, Governor State Bank of Pakistan Raza Baqir and Former Finance Secretary Dr. Waqar Masood Khan were present.
Advisor on Commerce Abdul Razaq Dawood, Shaukat Tareen, Sultan Alana, Dr. Ijaz Nabi and Arif Habib participated via Video-Link.
Advisor on Finance briefed about the objectives and focus areas of this Think-Tank on Finance and Economy.