Tag: Economic Survey 2021/2022

Tax exemptions cost Rs1.76 trillion in FY22

ISLAMABAD: The cost of tax exemptions has been estimated at Rs1.76 trillion during the fiscal year 2021/2022 as compared with Rs1.31 trillion in the preceding fiscal year, according to Economic Survey of Pakistan released on Thursday.

The cost of exemptions and concessions under sales tax has increased to Rs1.014 trillion during fiscal year 2021/2022 as compared with Rs578 billion in the last fiscal year.

READ MORE: Share of domestic electricity consumption declines

The Federal Board of Revenue (FBR) granted duty exemptions and concessions to the tune of Rs343 billion in the outgoing fiscal year as compared with Rs288 billion in the preceding fiscal year.

The cost of exemptions and concessions under the head of income tax, however, declined to Rs399.66 billion in the fiscal year 2021-2022 as compared with Rs448 billion in the last fiscal year.

READ MORE: Average inflation estimated up to 12% in FY22

The survey said that there are a variety of factors responsible for the low tax to GDP ratio including a narrow tax base particularly agriculture contributing minimally to the tax collection, tax evasion, poor documentation, the informal economy, exemptions/concessions, smuggling, weak audit & enforcement, a lack of automation, and lengthy litigation.

READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

As a result of insufficient tax revenues, the country has faced numerous challenges over the years in providing much-needed fiscal space for priority areas such as infrastructure, education, health, and targeted social assistance.

READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

June 10, 2022
Share of domestic electricity consumption declines

ISLAMABAD: The share of electricity consumption by domestic and commercial consumers in the total consumption has declined during first nine months of the current fiscal year, according to Economic Survey of Pakistan 2021/2022.

The share of electricity consumption by household users fell to 47 per cent during July – March 2021/2022 as against the share of 49.1 per cent in the same period of the last fiscal year.

READ MORE: Average inflation estimated up to 12% in FY22

Electricity consumption in the commercial sector has also witnessed a decline and stood at 7 percent in FY2022, down from 7.4 percent in FY2021.

However, the share of Industry in electricity consumption has increased to 28 percent during July-April FY2022 from 26.3 percent during July-April FY2021.

The use of electricity in agriculture sector has slightly increased to 9 percent from 8.9 percent. The share of electricity consumption in other sectors, including public lighting, general services and other government traction has decreased to 8 percent from 8.3 percent.

READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

There is a slight shift in the percentage share of different sources in electricity generation. Thermal has still the largest share in electricity generation in the country, although its percentage contribution has declined from 62.5 percent during Jul-April FY2021 to 60.9 percent during Jul-April FY2022.

READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

Similarly, the percentage contribution of Hydel in electricity generation has also reduced from 27.8 percent in Jul-April FY2021 to 23.7 percent during Jul-April FY2022.

The percentage share of Nuclear has increased from 7.2 percent during Jul-April FY2021 to 12.35 percent during Jul-April FY2022. The contribution of renewable in the electricity generation has increased from 2.4 percent during Jul-April FY2021 to 3.02 percent in the first ten months of FY2022.

READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

June 10, 2022
Average inflation estimated up to 12% in FY22

ISLAMABAD: The average inflation for the fiscal year 2021/2022 has been estimated up to 12 per cent as against the target of 8 per cent, according to Economic Survey of Pakistan released on Thursday.

The survey said that the rising input costs on the back of high utility prices and the lagged impact of exchange rate depreciation likely to maintain upward pressure on inflation in the following month of outgoing fiscal year.

There is significant uncertainty around the outlook for international commodity prices as well which had been exacerbated by the Russia- Ukraine conflict.

The impact will be more visible in non-food prices, while the food prices are likely to remain stable due to effective monitoring of prices and smooth supply of essential items by the federal and provincial governments.

READ MORE: SBP jacks up policy rate by 6.75% to 13.75%

“As a result of these developments, average inflation forecasts have been revised upwards and will remain 11.5-12.0 percent in FY2022,” the survey said.

For the outgoing fiscal year, the inflation target was set at 8.0 percent, but abnormal increase in global commodity prices especially crude oil and the edible oil has soared the domestic prices since Pakistan is net importer of these essential items.

It is the 6^th consecutive month when inflation rate has remained in double digit. Consumer Price Index (CPI) in April 2022 stood at 13.4 percent on a year-on-year (YoY) basis which was up from 12.7 percent in the previous month and 11.1 percent in April 2021. The pace of food inflation surged 15.6 percent in Urban and 17.7 percent in Rural during the month of April 2022. The CPI Inflation, recorded at 11.0 percent on average during July-April FY2022 as against 8.6 percent in same period last year.

READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

The pressures on headline inflation during the period can be attributed to adjustment in prices of electricity and gas, a significant increase in the non-perishable food prices, exchange rate depreciation along with rapid increase in global fuel and commodity prices.

The drivers of global price hike highlight that demand for goods was already strong but supply side limitations due to global logistics (transportation congestion) constraints added stress to already swelling prices. It is also recorded that the Wholesale Price Index (WPI) continued its upward trajectory, indicating persistent cost push inflationary pressure in the economy.

READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

The government made best efforts to ensure smooth supply of essential domestic goods through vigilant monitoring of prices both at provincial and federal level. A Ramazan package of Rs 8.2 billion was provided through Utility Store Corporation (USC) for providing essential items to general public at affordable prices. Government has already approved import of three million metric tonnes of wheat to ease the supply in the country.

Further, continuous relief to the lower strata of the society from global inflationary pressure, the ECC granted approval to revise prices of wheat flour and sugar from Rs 950/20kg to Rs 800/20kg and Rs 85/kg to Rs 70/kg, respectively, and also directed that discount of Rs 190/kg on vegetable ghee will be continued. The government will continue to absorb the cost of subsidy for the benefit of the common man.

READ MORE: Agriculture surpasses FY22 growth target: Economic Survey

June 10, 2022
SBP jacks up policy rate by 6.75% to 13.75%

ISLAMABAD: The State Bank of Pakistan (SBP) has increased the key policy rate by 6.75 per cent during September 2021 to May 2022, according to Economic Survey of Pakistan 2021/2022 released on Thursday.

The survey stated that Pakistan’s economy has witnessed a V-shaped recovery in 2020-2021 after witnessing a contraction of 0.9 percent in FY2020.

After the COVID outbreak, the policy rate was reduced by 6.25 per cent within short span of less than three months, during March-June 2020. This was the largest policy rate cut in emerging market economies.

READ MORE: Tax to GDP ratio estimated at 10.8% in FY22: Economic Survey

During FY2021, the SBP maintained an accommodative monetary policy stance, by keeping the policy rate unchanged at 7.0 percent throughout FY2021.

Besides, SBP provided liquidity and regulatory support to businesses and households during the challenging times. The economic policy was implemented with a prudent mix which supported the economic recovery without putting any pressure on macroeconomic imbalances.

With heightened uncertainty due to COVID-19, the Monetary Policy Committee for the first time considered it appropriate to provide some forward guidance on monetary policy in its January 2021 meeting, to facilitate policy predictability and decision making by economic agents.

In the absence of unforeseen developments, the Monetary Policy Committee (MPC) expected monetary policy settings to remain unchanged in the near term.

READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

Moreover, in the subsequent monetary policy decisions during FY2021, the MPC has maintained the policy rate of 7.0 percent to nurture the economic recovery.

At the end of first quarter FY2022, policy rate has increased by 25 basis points (bps) to 7.25 percent. The decision was primarily based on observation of excess aggregate demand and more than expected economic recovery as reflected by rising high import bill and increasing current account deficit.

The objective of monetary policy was shifted to ensuring the appropriate policy mix to protect the longevity of growth, keep inflation expectations anchored, and control the current account deficit.

In subsequent Monetary Policy decisions announced in November and December, 2021, policy rate was increased by 150 bps and 100 bps to 8.75 percent and 9.75 percent, respectively. The decision was made due to heightened risks associated with inflation and balances of payments, which stemmed from both global and domestic factors.

READ MORE: Agriculture surpasses FY22 growth target: Economic Survey

In Pakistan, high import prices have contributed to higher-than-expected inflation outturns. At the same time, there were also emerging signs of demand-side pressures on inflation from domestic administered prices.

In December, 2021 Monetary policy decision, MPC explained that the goal of mildly positive real interest rates was now close to being achieved. Looking ahead, the MPC expected monetary policy settings to remain broadly unchanged in the near-term.

Resultantly, policy rate has kept unchanged at 9.75 percent in two successive decisions held on January and March, 2022.

However, policy rate was increased by 250 bps to 12.25 percent from 9.75 percent in an unscheduled meeting on 07th April 2022, to address significant uncertainty amidst rising global commodity prices and domestic political situation. The inflation outlook had deteriorated and risks to external stability had increased for FY2022. Externally, futures market suggests that global commodity prices, including oil, are likely to remain elevated for longer and the Federal Reserve is likely to increase interest rates more quickly than previously anticipated, likely leading to a sharper tightening of global financial conditions.

READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22

Domestically, some macroeconomic indicators have deteriorated, as have SBP reserves as a result of debt repayment and political uncertainty.

In monetary policy decision held on 23rd May, 2022 the MPC decided to raise the policy rate by 150 basis points to 13.75 percent. The decision was based on outcome of provisional growth estimates for FY2022 more than target, shows excess aggregate demand, elevated external sector pressure and the higher inflation outlook due to domestic and international factors.

In addition to policy rate increase, the interest rates on EFS and LTFF loans are also being raised. The MPC has informed that in future, these rates will be linked to the policy rate and will adjust automatically, while continuing to remain below the policy rate in order to incentivize exports.

June 10, 2022
Tax to GDP ratio estimated at 10.8% in FY22

ISLAMABAD: Pakistan’s tax to GDP ratio has been estimated at 10.8 per cent for the fiscal year 2021/2022 as against the ratio of 8.5 per cent in the preceding fiscal year, according to Economic Survey of Pakistan 2021/2022 released on Thursday.

The tax to GDP ratio has been estimated on the basis of tax collection by the Federal Board of Revenue (FBR). The FBR tax to GDP ratio since fiscal year 2015/2016 is calculated on the basis of the revised GDP at the new base of 2015/2016, according to the survey.

READ MORE: LSM posts 10.4% growth in July – March: Economic Survey

The tax-to-GDP ratio is the real index for measuring tax compliance, capacity, and efficiency in the tax system. A higher tax to GDP ratio allows the government to rely more on domestic resources rather than external sources of revenue, while also ensuring the availability of sufficient funds to meet a country’s development and social expenditures.

Unfortunately, the tax to GDP ratio in Pakistan remains low over the years. There are a variety of factors responsible for the low tax to GDP ratio including a narrow tax base particularly agriculture contributing minimally to the tax collection, tax evasion, poor documentation, the informal economy, exemptions/concessions, smuggling, weak audit & enforcement, a lack of automation, and lengthy litigation.

READ MORE: Agriculture surpasses FY22 growth target: Economic Survey

As a result of insufficient tax revenues, the country has faced numerous challenges over the years in providing much-needed fiscal space for priority areas such as infrastructure, education, health, and targeted social assistance.

Overall tax revenues (federal & provincial) increased to 9.4 percent of GDP in FY2021 against 9.3 percent of GDP recorded in FY2020. In total, FBR which collects a major part of tax revenues was able to increase the tax to GDP ratio to 8.5 percent in FY2021 against 8.4 percent of GDP in FY2020.

READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22

Total tax collection has been severely impacted over the last two years: first in FY2019 due to a slowdown in economic activity because of stabilization measures, a low tax rate on major petroleum products, import compression, suspension of withholding tax collection on mobile top-ups, and a reduced rate on salary income.

Second, during FY2020, the COVID-19 crisis hampered tax collection. However, FBR’s measures to improve the tax collection helped it to achieve a growth of 19 percent in FY2021 against a 4.4 percent rise in the preceding year.

READ MORE: Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

It is worth mentioning that FBR tax collection crossed the Rs 4 trillion mark for the first time in history. Nonetheless, during the last six years, the tax to GDP ratio remained lower within a range of 8.4 percent and 9.8 percent.

June 10, 2022
LSM posts 10.4% growth in July – March: Economic Survey

ISLAMABAD: Large Scale Manufacturing (LSM) has registered a significant 10.4 per cent growth during first nine months (July – March) of the current fiscal year, according to Economic Survey of Pakistan 2021/2022 released on Thursday.

According to the survey, the performance of LSM stood tremendous with 10.4 percent growth during July-March 2021/2022 as compared to growth of 4.2 percent same period last year.

READ MORE: Agriculture surpasses FY22 growth target: Economic Survey

The prudent measures and continuous support along with rising global demand, easy access to credit, and partially subsidized energy supplies bode well in boosting the business sentiments and achieving higher growth of LSM.

On a year-on-year (y-o-y) basis, LSM grew by 26.6 percent in March FY2022 against 22.5 percent growth in the same month last year. However, on a month-on-month (m-o-m) basis LSM marked the growth of 8.2 percent in March 2022 against 3.7 percent in February 2022.

READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22

Out of 22 subsectors, 17 posted growth during July-March FY2022. The performance was broad-based on the back of strong growth of high weighted sectors such as Textile, Food, Wearing Apparel, Chemicals, Automobile, Tobacco, Iron & Steel Products along with Furniture, Wood Products, and Footballs.

READ MORE: Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

The Mining and Quarrying sector remained negative at 4.47 percent during July-March FY2022 as against the growth of 1.21 percent last year. This sector is lagging behind despite huge potential, due to interconnected and cross-cutting issues like poor regulatory framework, insufficient infrastructure at mines sites, outdated technology installed, semi-skilled labor, low financial support, and lack of marketing. Production of major minerals such as Coal, Natural Gas, Chromite, Crude Oil, and Barytes witnessed a growth of 8.34, 3.45, 25.7, 4.48, and 162.5 percent, respectively.

READ MORE: Pakistan may increase normal sales tax rate to 18%

However, some witnessed negative growth during the period under review such as Magnesite 52.3 percent, Gypsum 36.9 percent, Lime stone 33.3 percent, Ocher 25.5, Rock Salt 24.2 percent, and Marble 22.9 percent.

June 10, 2022
Agriculture surpasses FY22 growth target: Economic Survey

ISLAMABAD: The agriculture sector has surpassed the growth target of 3.5 per cent for fiscal year 2021-2022 and grew by 4.40 per cent during the fiscal year under review, according to the Economic Survey of Pakistan 2021/2022 released on Thursday.

It said during FY22 (2021/2022), the agriculture sector recorded a remarkable growth of 4.40 percent and surpassed the target of 3.5 percent and last year’s growth of 3.48 percent.

READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22

This growth is mainly driven by high yields, attractive output prices and supportive government policies, better availability of certified seeds, pesticides, and agriculture credit.

The crops sector outperformed and posted a growth of 6.58 percent during FY22 against 5.96 percent last year. At the sub-sector level, important crops, other crops, and cotton ginning depicted a significant growth of 7.24 percent, 5.44 percent, and 9.19 percent, respectively, against last year’s growth of 5.83 percent, 8.27 percent, and -13.08 percent.

READ MORE: Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

The growth in production of important crops namely cotton, rice, sugarcane, and maize are estimated at 17.9 percent, 10.7 percent, 9.4 percent, and 19.0 percent, respectively.

The cotton crop increased from 7.1 million bales reported last year to 8.3 million bales during 2021-2022; rice production increased from 8.4 million tonnes to 9.3 million tonnes; sugarcane production increased from 81.0 million tonnes to 88.7 million tonnes; maize production increased from 8.9 million tonnes to 10.6 million tonnes respectively, while wheat production decreased from 27.5 million tonnes to 26.4 million tonnes.

READ MORE: Pakistan may increase normal sales tax rate to 18%

Other crops having a share of 13.86 percent in agriculture value addition and 3.14 percent in GDP, grew by 5.44 percent on the back of an increase in the production of pulses (29.82 percent), oilseeds (24.75 percent), vegetables (11.52 percent), fruits (1.53 percent) and fodders (0.36 percent).

Livestock having a share of 61.89 percent in agriculture and 14.04 percent in GDP, recorded a growth of 3.26 percent in 2021-22 compared to 2.38 percent during the same period last year.

The fishing sector having a share of 1.39 percent in agriculture value addition and 0.32 percent in GDP grew at 0.35 percent compared to a growth of 0.73 percent in the same period last year.

READ MORE: PM Shehbaz assures favorable measures on CNIC requirement

The forestry sector having a share of 2.14 percent in agriculture value addition and 0.49 percent in GDP posted a positive growth of 6.13 percent against the negative growth of 0.45 percent last year.

Water availability during Kharif 2021 was recorded at 65.1 million-acre feet (MAF) compared to 65.1 MAF of Kharif 2020. Rabi season 2021-22 stood at 27.4 MAF, showing a decrease of 12 percent over Rabi 2020-2021.

The domestic production of fertilizers during FY2022 (July-March) increased by 1.9 percent over the same period of last year. This increase in domestic production of fertilizer is mainly due to the running of two LNG-based plants, FatimaFert and Agritech Limited, from September 2021 to March 2022. Although the import of fertilizer decreased by 6.2 percent, however, the total availability of fertilizer slightly increased by 0.5 percent.

There was a decrease in the total offtake of fertilizer nutrients by 3.6 percent.

During July-March FY2022, total tractor production reached 41,871 compared to 36,900 produced last year, a 13.5 percent higher than the same period last year.

During FY2022 (July-March), banks disbursed Rs 958.3 billion which is 56.4 percent of the overall annual target and 0.5 percent higher than the disbursement of Rs 953.7 billion made during the same period last year. Further, the outstanding portfolio of agricultural loans has increased by Rs 30.9 billion i.e., from Rs 601.8 billion to Rs 632.7 billion at end of March 2022 as compared to the same period last year.

In terms of outreach, the number of outstanding borrowers reached 3.2 million in March 2022.

During FY2022 (July-March), total fish production was recorded at 696.0 thousand MT (marine: 468 thousand MT and inland: 228 thousand MT) witnessing an increase of 0.8 percent over the same period of last year’s fish production of 690.6 thousand MT (marine: 465.2 thousand MT and inland: 225.4 thousand MT).

June 9, 2022
Economic growth to be slow down next year: Economic Survey

ISLAMABAD: After achieving GDP growth at 5.97 per cent in the fiscal year 2021/2022, the economic growth to be slow down next year, according to the Economic Survey of Pakistan released on Thursday.

The survey stated that Pakistan’s economy faces several severe challenges. Inflation is running too high, the prospects for future growth in potential output are challenging.

READ MORE: Per capita income in Pakistan rises to $1,798 in 2021-22

Fiscal deficit is at a level where its financing is becoming challenging. Further, high trade deficit is leading to external imbalances putting extra pressure on foreign reserves and on the exchange rate. “Economic growth seems to be slow down next year,” it added.

Moreover, high uncertainties are restricting market confidence. In the short run, Pakistan is confronted with the challenge to finance its external finance requirements stemming from current account deficits and foreign debt servicing.

READ MORE: Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

Successful conclusion of the seventh review of Pakistan’s reform program which is supported by an IMF Extended Fund Facility arrangement is on the right direction.

The government is very much committed to ensure the stability and confidence in the economy.

Stable fiscal policy with a higher, growth promoting path for Public Sector Development Program (PSDP), based on physical and human capital development will be obligatory.

READ MORE: Pakistan may increase normal sales tax rate to 18%

Likewise, subsidies targeted to stimulate development of innovative industries and services will be essential. On the revenue side, growth-oriented revenue policies will be helpful. There is intense need of creating an environment conducive for investments.

Further, the investment must be capable of considerably augmenting the share of GFCF in GDP as well as increasing the efficiency to create additional welfare. Investors and consumers need to be convinced of a long term sustainable and inclusive growth project that inspires confidence in Pakistan’s economic future and that induces them to take initiatives in their own and in the country’s interest. Thus, well-functioning competitive markets is required.

READ MORE: PM Shehbaz assures favorable measures on CNIC requirement

There is also need to continue policies which brought improvement in related sectors. For example, Prime Minister’s Agriculture Package and related agricultural policies remained more effective for better agriculture performance. Likewise, policies related to energy mix and efficient energy supplies.

Furthermore, there is also need of stable legislative and political culture.

READ MORE: New tax measures likely in budget 2022-2023

As a result of these, it is expected that potential output growth will be upgraded, resulting in higher employment and real income growth. It will also create additional capacity for exports and import substitution and a stable exchange rate environment.

Thus, demand management fiscal and monetary policies should on average be neutral and play their role of cyclical stabilizers when temporary shocks create deviations from the long-term growth path.

June 9, 2022
Per capita income in Pakistan rises to $1,798 in 2021-22

ISLAMABAD: The per capita income in Pakistan has increased to $1,798 during fiscal year 2021/2022, according to Economic Survey of Pakistan.

The Economic Survey of Pakistan 2021/2022 launched on Thursday. According to the survey the per capita income of the country improved to $1,798 during the fiscal year 2021/2022 as compared with $1,676 in the last fiscal year.

READ MORE: Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

Regarding per capita income in terms of dollar, there was a rebound seen in 2020-2021 which continued in 2021-2022, the survey said.

“In the outgoing fiscal year, per capita income was recorded at $1,798 which reflects an improvement in prosperity due to the fact that economic growth per person improved,” the survey added.

READ MORE: Pakistan may increase normal sales tax rate to 18%

According to the survey though economy recovered from the pandemic (a 0.94 percent drop in FY2020) and maintained V-Shaped recovery by posting real GDP growth of 5.97 percent in the fiscal year 2022. This high growth, however, is unsustainable and has resulted in financial and macroeconomic imbalances.”

READ MORE: PM Shehbaz assures favorable measures on CNIC requirement

The economic survey highlighted that political instability in the country also led to a huge increase in economic uncertainty. Uncertainty at individual, firm, and government levels is negatively affecting the economy. Political stability can reduce uncertainty by making clear policy statements to build the trust of domestic as well as foreign investors and the business community.

READ MORE: New tax measures likely in budget 2022-2023

The survey highlighted that the higher high growth, however, is also accompanied by external and internal imbalances, as has been the case historically with Pakistan’s economy. However, external circumstances also played a critical role this time.

June 9, 2022
Pakistan achieves 5.97% GDP growth in 2021/2022: Economic Survey

ISLAMABAD: Pakistan has achieved the GDP growth at 5.97 per cent in the fiscal year 2021/2022. However the economy also started to show signs of excess demand and overheating through an increase in the import volume of capital and consumer goods, energy, and non-energy imports.

This was revealed by Economic Survey of Pakistan 2021/2022 launched by Finance Minister Miftah Ismail on Thursday.

The survey pointed out that though economy recovered from the pandemic (a 0.94 percent drop in FY2020) and maintained V-Shaped recovery by posting real GDP growth of 5.97 percent in the fiscal year 2022. This high growth, however, is unsustainable and has resulted in financial and macroeconomic imbalances.”

READ MORE: Pakistan may increase normal sales tax rate to 18%

The economic survey highlighted that political instability in the country also led to a huge increase in economic uncertainty. Uncertainty at individual, firm, and government levels is negatively affecting the economy. Political stability can reduce uncertainty by making clear policy statements to build the trust of domestic as well as foreign investors and the business community.

The survey highlighted that the higher high growth, however, is also accompanied by external and internal imbalances, as has been the case historically with Pakistan’s economy. However, external circumstances also played a critical role this time.

These circumstances have placed almost all economies of the world in shambles. A highly transmissible Omicron variety, changes in Afghanistan’s government after the withdrawal of US troops sparked and the Russian-Ukraine conflict started in February 2022, all of these have upended the global economic picture. Financial and commodity markets have felt shockwaves.

READ MORE: PM Shehbaz assures favorable measures on CNIC requirement

Thus, energy and food prices have surged rapidly and threaten to remain further elevated. The exceedingly uncertain outcome of the crisis is another challenge for developing economies, particularly for Pakistan.

The survey pointed out that Pakistan’s economy has shown a strong recovery after being depressed due to the pandemic which resulted in lockdown. For FY2022, real GDP (GVA at basic prices 2015-16) posted a growth of 5.97 percent on account of 4.40 percent growth in Agriculture, 7.19 percent growth in the Industrial sector, and 6.19 percent growth in the Services sector. This growth is slightly above the growth of 5.74 percent recorded for 2020-2021.

The coordinated monetary-fiscal policy approach after the COVID-19 outbreak has succeeded in reviving the real economic activity. Specifically, the fiscal-monetary stimulus packages have a cascading effect on growth through a revival in private investment.

In addition, the accommodative monetary policy stance in FY2021, focused on the revival of the construction industry and mandatory housing finance targets by the SBP, together with the rebound in external demand has set the stage for stronger growth momentum in the fiscal year 2021/2022.

READ MORE: New tax measures likely in budget 2022-2023

Further, growth momentum was observed on account of broad-based expansion in large-scale manufacturing (LSM) and improved crop production. However, the economy also started to show signs of excess demand and overheating through an increase in the import volume of capital and consumer goods, energy, and non-energy imports.

On the external front, the exports grew remarkable on account of policy supports provided-including regionally competitive energy tariff rates, Export Facilitation Scheme 2021, enhancement in coverage and loan limits under LTFF, Changes in FX regulations to facilitate exports, the launch of an e-Tijarat portal and tariff rationalized in various sectors in line with objectives of National Tariff Policy 2019-2024. In addition to this, STPF 2020-25 has been prepared to enhance the export competitiveness of Pakistan through a framework of interventions having an impact across the value chains.

Furthermore, textile policy 2020-25 has also been approved to fully utilize the potential of home-grown cotton augmented by man-made fibers and filaments to boost value-added exports. Moreover, at the international level, World Trade Organization (WTO) has undertaken the Trade Policy Review (TPR) for Pakistan to achieve transparency and a better understanding of trade policies and practices.

READ MORE: Pakistan Budget 2022-2023 – estimates

However, a surge in global commodity prices is exerting pressure on imports by significantly pushing up import payments. Resultantly, the sizeable trade deficit of US$ 32.9 billion during July-April FY2022 was partially financed by significant workers’ remittances.

Thus, in the period under discussion, the current account posted a deficit of US$ 13.8 billion compared to a deficit of US$ 0.5 billion during the same period last year. The widening of the current account deficit together with a build-up in inflationary pressures in the backdrop of the geopolitical situation (especially the Russia-Ukraine conflict) has created significant challenges for sustainable economic growth.

In addition, the recent emergence of domestic conditions (including political instability) is eroding business confidence. Thus, all in all, inflationary and external sector pressures have created macroeconomic imbalances in the economy.

To counter inflationary pressure and for sustainable economic recovery, SBP moved to monetary policy normalization in September 2021. Policy Rate increased by cumulative 675 basis points (6.75 per cent) between September-April, FY2022.

The CPI inflation for the period July-May FY2022 was recorded at 11.3 percent as against 8.8 percent during the same period last year. The pressures on headline inflation can fairly be attributed to adjustments in prices of electricity and gas, a significant increase in the non-perishable food prices, exchange rate depreciation along with a rapid increase in global fuel and commodity prices.

Shocks to the economy caused significant damage to Pakistan’s public finances. In response, the Government formulated and implemented various policy initiatives which improved fiscal outcomes, especially on the revenue side. The Federal Board of Revenue (FBR) has initiated various policy and administrative measures to facilitate the taxpayers to mobilize domestic resources and generate sufficient revenue without hurting growth momentum.

READ MORE: Compliance cost much higher for corporatization: PSX

FBR tax collection witnessed a substantial growth of 28.5 percent during July-April FY2022. However, higher grants and huge subsidies kept the expenditure side under intense pressure. The fiscal deficit increased to 3.8 percent of GDP in July-March FY2022 against 3.0 percent of GDP during the same period last year. Similarly, the primary balance posted a deficit of Rs 447.2 billion.

In the medium term, comprehensive measures are needed to strengthen and reliability of overall economic performance to reinvigorate the economy, spur growth, maintain price stability, provide jobs to the youth and rebuild the key infrastructure of the country. This will also require fiscal adjustments, and reforms in almost every sector of the economy to lay the foundation for higher, inclusive, and sustainable economic growth.

For current fiscal year, GDP at current market prices stands at Rs 66,950 billion showed a growth of 20.0 percent over last year (Rs 55,796 billion). In the dollar term, it remained at US$ 383 billion. Gross National Income (GNI) is also used for measuring and tracking a nation’s wealth which is calculated by adding Net Primary Income (NPI) to GDP (MP).

June 9, 2022