Islamabad, June 9, 2023: The Pakistani government has set a target of 3.5 percent GDP growth for the fiscal year 2023-24, according to sources at the Ministry of Planning, Development, and Special Initiatives.
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Pakistan Economic Survey 2022-23: Only 0.29% GDP Growth Achieved
Islamabad, June 8, 2023: According to Finance Minister Ishaq Dar, Pakistan’s Gross Domestic Product (GDP) achieved a meager growth of only 0.29 percent during the fiscal year 2022-2023. This announcement was made during the unveiling of the Pakistan Economic Survey 2022-23 at a press conference.
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Pakistan estimates GDP growth at 0.29% in FY23
ISLAMABAD: Pakistan’s National Accounts Committee (NAC) has recently released the provisional National Accounts for the fiscal year 2022-2023 (FY23).
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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.
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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).
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Pakistan Budget 2022-2023 – estimates
Pakistan government is going to announce federal budget for fiscal year 2022-2023 on June 10, 2022. The country is eyeing revival of an IMF program and it is likely that the upcoming budget will have measures that promotes fiscal austerity and stabilization.
According to Topline Securities the budget outlay for 2022-2023 is estimated at Rs9-9.5 trillion (11.5 per cent to 12 per cent of GDP) as against budget of Rs8.5 trillion (12.7 per cent of GDP) for the outgoing fiscal year.
READ MORE: Compliance cost much higher for corporatization: PSX
The government is likely to set tax revenue collection target of Rs7.25 trillion for the next fiscal year (9.2 per cent of GDP), which is up 19 per cent from the revised target of Rs6.1 trillion (9 per cent of GDP) for the outgoing fiscal year. It is likely to impose new taxation measures of Rs400-450 billion in the upcoming budget.
Current expenditure target is likely to be set at 12 per cent of GDP in FY23 or Rs8 trillion which is around 11 per cent YoY higher than what was budgeted in the outgoing fiscal year. Similarly, government is likely to set aside Rs3.5-Rs3.9 trillion (4.5 per cent-5.0 per cent of GDP) for markup payment for FY23 budget and Rs1.6 trillion is likely to be set aside for Defense expenditure which is 2.1 per cent of GDP.
For fiscal year 2022-2023, Federal Public Sector Development (PSDP) is budgeted at Rs800 billion vs. Rs466 billion disbursed in 10MFY22 and revised budgeted amount of Rs603 billion for the outgoing fiscal year.
READ MORE: FBR suggested reduction in tax rates for equity funds
Consolidated PSDP (Federal & Provincial) is anticipated to clock in at Rs1.4 trillion (1.8 per cent of GDP) in the next fiscal year, as against Rs1.2 trillion in the current fiscal year.
Few taxation measures that are under consideration includes: 1) increase in super tax for Banking sector and re-imposition of super tax on highly profitable companies, 2) increase in tax rate for individuals earning high salaries, 3) reduction in tax concessions and exemptions for various sectors, 4) increase in regulatory duties on luxury items, 5) luxury tax on immovable property & vehicles, and 6) increase in taxes for non-filers.
With economic slowdown, tax revenue target of Rs7.25 trillion will be challenging to achieve in FY23. However, it will depend on the amount of new taxes to be imposed in Budget FY23.
IMF has already demanded government to remove tax exemptions & subsidies and increase the rate of taxes on few sectors as per news reports.
READ MORE: PSX proposes tax exemption on property transactions
Non-tax revenue target for FY23 is estimated at Rs1.6 trillion (2.1 per cent of GDP) as against Rs2 trillion (3.1 per cent of GDP) budgeted for FY22. Lower target is due to expected decline in petroleum development levy (PDL) during the year.
With likely slowdown in economic activity, total revenue target (tax & non-tax) of Rs9 trillion will be difficult to achieve. However, it will depend on how much new taxes government imposes in Budget FY23.
Net revenue receipts after provincial share is budgeted at Rs4.7 trillion for FY23 as against Rs4.5 trillion for FY22 budgeted.
Current expenditure target is likely to be at 12 per cent of GDP in FY23 or Rs8 trillion which is around 11 per cent YoY higher than what was budgeted in FY22.
The government is likely to set aside Rs3.5-Rs3.9rn (4.5 per cent-5.0 per cent of GDP) for interest payment for FY23 budget. This is against Rs3 trillion (4.6 per cent of GDP) budgeted for FY22. Rising debt & high interest rates is responsible for this 20 per cent+ increase in interest payments.
For defense expenditures, government will likely set Rs1.6 trillion or 2.1 per cent of GDP for FY23. This compares to an allocation of Rs1.4 trillion or 2.1 per cent of GDP in FY22.
READ MORE: SMEs should be given tax credit to encourage listing
Annual Plan Coordination Committee finalized Federal Public Sector Development Program (PSDP) of Rs800 billion (1 per cent of GDP) for FY23. This compares to Rs466 billion of PSDP disbursed in 10MFY22 and revised budgeted amount of Rs603 billion for FY22. To recall, PSDP allocation even for FY22 budget was set much higher to the tune of Rs900 billion which was later revised down due to fiscal constraints.
Consolidated PSDP (Federal & Provincial) is anticipated to clock in at Rs1.4 trillion (1.8 per cent of GDP) in FY23, as against Rs1.2 trillion in FY22.
Low spending on development budget and no major reduction in current expenditure will affect overall economic activity in FY23, we believe.
The government will be setting fiscal deficit target of 6 per cent of GDP or Rs4 trillion for FY23 versus estimated fiscal deficit of Rs5.6 trillion or 8 per cent of GDP in FY22. We believe this fiscal discipline relative to last year may help in convincing IMF to resume the pending tranche.
READ MORE: FBR urged to eliminate minimum tax for listed companies
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Unemployment, inflation key challenges for Pakistan: WB
The World Bank (WB) has pointed out unemployment and food inflation as the major challenges for Pakistan’s economy.
The World Bank issued a report Shifting Gears: Digitization and Services-Led Development on Thursday.
“… downside risks arising from lockdown-induced disruptions to employment and high food inflation remain,” the World Bank said.
It projected Pakistan’s output growth at 3.4 per cent in current fiscal year, which is revised upward from 1.4 per cent considering uplift in economic activities.
The World Bank said that growth further strengthen to 4.0 percent in FY23 with the implementation of key structural reforms, particularly those aimed at sustaining macroeconomic stability, increasing competitiveness and improving financial viability of the energy sector.
The report said that the 25-basis point policy rate hike in September 2021 by the State Bank of Pakistan (SBP), fiscal and monetary tightening are expected resume in the current fiscal year, as the government refocuses on mitigating emerging external pressures and managing long-standing fiscal challenges.
Inflation is projected to edge up in FY22 with expected domestic energy tariff hikes and higher oil and commodity prices before moderating in FY23.
Poverty is expected to continue declining, reaching 4.0 percent by FY23.
The current account deficit is projected to widen to 2.5 percent of GDP in FY23 as imports expand with higher economic growth and oil prices.
Exports are also expected to grow strongly after initially tapering in FY22, as tariff reform measures gain traction supporting export competitiveness.
In addition, the growth of official remittance inflows is expected to moderate after benefiting from a COVID-19 induced transition to formal channels in FY21.
Despite fiscal consolidation efforts, the deficit is projected to remain high at 7.0 percent of GDP in FY22 and widen to 7.1 percent in FY23 due to pre-election spending.
Implementation of critical revenue-enhancing reforms, particularly the General Sales Tax harmonization, will support a narrowing of the fiscal deficit over time.
Public debt will remain elevated in the medium-term, as will Pakistan’s exposure to debt-related shocks.
This outlook assumes that the IMF-EFF program will remain on-track, the World Bank said.
The report said that despite repeated COVID-19 waves, Pakistan’s economy recovered in FY21 amid effective targeted lockdowns and an accommodative monetary policy stance.
Economic growth is expected to ease in FY22 before strengthening again in FY23.
However, potential delays in the IMF program, high demand-side pressures, potential negative spillovers from the evolving situation in Afghanistan and more severe and contagious COVID-19 waves pose downside risks to the outlook.
Discussing challenges to Pakistan economy, the World Bank stated that with the pandemic, the government has been focused on managing the repeated COVID-19 infection waves, implementing a mass vaccination campaign, expanding its cash transfer program, and providing accommodative monetary conditions to sustain economic growth.
“Grappling with the fourth COVID-19 wave, the government, as before, implemented micro lockdowns that successfully limited the infection spread, while permitting economic activity to continue and thereby mitigating the economic fallout. While they have been accelerating, vaccination rates remain low,” it said.
As of September 15, only around 10 percent of the total population has been fully vaccinated.
The 39-month IMF-Extended Fund Facility (IMF-EFF) is likely to resume in FY22 with the 6th Review mission expected in October 2021. Key reforms include domestic revenue mobilization, the reduction of power sector arrears, electricity subsidy reform and more central bank operational autonomy, all of which are expected to strengthen long-term growth.
Major downside risks include delays and stalling of the IMF-EFF program and the consequent external financing difficulties, exceedingly high domestic demand leading to unsustainable external pressures, more contagious COVID-19 strains requiring widespread lockdowns, and a worsening of regional and domestic security conditions, including those stemming from the Afghanistan situation. All these could delay critical structural reforms.
Due to low-base effects and recovering domestic demand, real GDP growth (at factor cost) is estimated to have rebounded to 3.5 percent in FY21 from a contraction of 0.5 percent in FY20.
Buttressed with record-high official remittance inflows, received through formal banking channels, and an accommodative monetary policy, private consumption and investment are both estimated to have strengthened during the FY.
The government consumption is also estimated to have risen, but at a slower pace than in FY20 when the COVID-19 fiscal stimulus package was rolled out.
In contrast, net exports are estimated to have contracted in FY21, as imports growth almost doubled that of exports due to strong domestic demand.
On the production side, supported by strong large-scale manufacturing, industrial activity is projected to have rebounded after contracting for two consecutive years.
Similarly, the services sector that accounts for 60 percent of GDP, is estimated to have expanded, as generalized lockdown measures were increasingly lifted.
In contrast, agriculture sector growth is expected to have slowed, partly due to a near 30 percent decline in cotton production on adverse weather conditions.
Despite slowing to 8.9 percent in FY21 from 10.7 percent in FY20, headline consumer price inflation remained elevated – mostly because of high food inflation, which is likely to disproportionately impact poorer households that spend a larger share of their income on food items compared to non-food items. With the policy rate being held at 7.0 percent throughout FY21, real interest rates were negative, supporting the recovery.
The current account deficit narrowed from 1.7 percent of GDP in FY20 to 0.6 percent in FY21 as robust remittance inflows offset a wider trade deficit.
Foreign direct investment decreased, while portfolio inflows increased with the issuance of US$2.5 billion Eurobonds.
Overall, the balance of payments surplus was 1.9 percent of GDP in FY21, and the official foreign exchange reserves rose to US$18.7 billion at end-FY21, the highest since January 2017 and equivalent to 3.4 months of total imports.
Accordingly, the Rupee appreciated by 5.8 percent against the U.S. dollar over the FY, while the real effective exchange rate rose by 10.4 percent.
In FY21, the fiscal deficit narrowed to 7.2 percent of GDP from 8.0 percent in FY20, as revenue growth, underpinned by stronger domestic activity, outpaced higher expenditures.
Public debt, including guaranteed debt, ticked down to 90.7 percent of GDP at end-June FY21 from 92.7 percent of GDP at end-June FY20.
Bolstered by the recovery in the industry and services sectors and resultant off-farm employment opportunities, poverty incidence, measured at the international poverty line of US$1.90 PPP 2011 per day, is expected to have declined to 4.8 percent in FY21 from 5.3 percent in FY20.
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Economic momentum likely to accelerate further in FY22: SBP
KARACHI: The State Bank of Pakistan (SBP) has said that the economic momentum is expected to accelerate further during FY22.
The optimistic outlook is premised on the expanding vaccine roll-out and relatively unhindered continuation of economic activity despite Covid-19, the SBP said in it’s the Third Quarterly Report on the State of Pakistan’s Economic for the Fiscal Year 2020/2021 released on Friday.
Temporary Economic Refinance Facility (TERF), which provides long-term lending for industrialization), the policy-led surge in construction and housing, and increased Public Sector Development Program (PSDP) spending, are also likely to be key growth drivers.
According to the report, there was growing evidence that the economic recovery gathered further momentum during the third quarter of FY21. The turnaround in the industrial sector, particularly large scale manufacturing (LSM), and the services sector, most notably in wholesale and retail trade, played a pivotal role.
In the agriculture sector, record output of four out of five important crops – namely wheat, rice, maize and sugarcane – offset the decline in cotton production. Further growth in high frequency demand indicators, such as local cement dispatches, Petroleum Oil and Lubricants (POL) and car sales, consumer financing, sales of Fast Moving Consumer Goods (FMCG), and power generation, reflected the accelerating rebound in economic activity. Against this backdrop, real GDP growth is provisionally estimated to be 3.9 percent for the full year, compared to a contraction of 0.5 percent in FY20.
These favorable outcomes were supported by the pro-active response of policymakers to the evolving pandemic. In addition to containment of the virus through smart lockdowns, targeted fiscal support while containing the deficit, a highly accommodative monetary policy stance, aggressive refinance facilities provided by the SBP to counter the health, employment and cash flow implications of the pandemic, as well as incentives and relief offered by the government and the SBP to households and businesses collectively lifted the economy out of last year’s Covid-induced recession.
Even as the economy rebounds strongly, stability in key macroeconomic indicators on the fiscal and external side were an additional source of comfort, as the current account and primary balance both remained in surplus during July-March FY21. The external account received significant support from workers’ remittances – which rose by US$ 4.5 billion to touch a record-breaking level of US$ 21.5 billion during July-March FY21 – as well as deferred interest payments on external debt through the G20 Debt Service Suspension Initiative (DSSI), curbs on international air travel, and lower global oil prices. Meanwhile, on the financing side, inflows from commercial, bilateral and multilateral sources were supplemented by new inflows under Roshan Digital Accounts, which crossed the US$ 1 billion mark in April 2021. Furthermore, the successful completion of the 2nd-5th IMF reviews unlocked US$ 500 million in direct financing from the Fund. Also, Pakistan reentered the international capital markets after a gap of over 3 years in early April 2021. As a result, SBP’s foreign exchange reserves rose to a three-year high of US$ 13.5 billion by end-March 2021, and the current account remained in surplus through the first three quarters for the first time since FY04.
The July-March fiscal deficit of 3.5 percent was lower than the 4.1 percent deficit in the comparable period last year. This was mainly attributed to a rationalization of spending, particularly a slowdown in non-priority current expenditure, and a robust increase in taxes. However, interest payments remained a significant burden, and continued to constrain the fiscal space for development spending. Besides the lower fiscal deficit, the revaluation gains from PKR appreciation and DSSI relief contributed to a reduced pace of debt accumulation during July-March FY21 compared to the same period last year.
Average headline inflation was lower than last year, both for the July-March FY21 period and for Q3-FY21. The third quarter outturn was mainly attributable to a deceleration in January 2021, led by the food and poultry groups. However, rising prices of electricity, sugar, edible oil, cotton cloth and readymade garments drove up inflation during February and March 2021.
Credit to the private sector was nearly 50 percent higher during July-March FY21 compared to last year. The third quarter witnessed a slowdown though, primarily due to retirements of short-term loans. By contrast, the SBP’s concessionary refinance schemes, such as the Temporary Economic Refinance
Facility (TERF), continued to spur the off take of fixed investment loans. Through the third quarter, loans of Rs 426.0 billion have been approved, of which Rs 74.0 billion have been disbursed under TERF, which bodes well for investment and growth going forward. Consumer financing also picked up considerably during the period compared to last year. In addition to auto and personal loans, there was a notable upturn in house financing as banks responded to the SBP’s mandatory targets to increase their housing and construction finance portfolios to at least 5 percent of the banks’ private sector credit by end-December 2021.
While the economy made an encouraging recovery during FY21, certain structural vulnerabilities continue to merit attention.
First, in the agriculture sector, the secular decline in cotton production needs to be addressed. Timely availability of pest-resistant seed varieties and further support from agriculture extension departments, particularly to promote the adoption of climate-smart farming practices, could enable better outcomes.
Second, in the external sector, the widening of the merchandise deficit needs to be contained to a sustainable level. Greater self-sufficiency in agriculture, through adoption of better farming and crop management practices, and maintenance of adequate stocks can reduce the need to import commodities (such as wheat, sugarcane and cotton) to bridge domestic shortfalls or counter temporary price pressures. Discouraging the import of luxury consumer items and promoting greater diversification of exports, in terms of value-added items and destinations, could also help.
Third, efforts are required to mitigate food inflation, triggered largely by supply-side issues in the management of agriculture commodities. This may be achieved through better coordination among federal and provincial food departments, provision of reliable data, vigilant monitoring of stocks and food prices, and timely import of commodities.
Fourth, the twin burdens of debt servicing and a narrow revenue base are leaving less fiscal room for public investment. This calls for an acceleration of efforts to broaden the tax base, increase documentation in the economy, improve public financial management, restructure loss-making public sector enterprises, and reduce circular debt of the power sector.
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FPCCI calls for broadening of tax base to push GDP growth
KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Saturday advised the government to reduce tax rates and broaden the tax base for achieving GDP growth at six percent during next two years.
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IMF projects Pakistan’s GDP growth at 5pc in FY24
KARACHI: International Monetary Fund (IMF) has projected that Pakistan’s GDP growth may grow five percent in 2023/2024 from projected growth of 1.5 percent in the current fiscal year.
The IMF issued country report on Pakistan’s economy on Thursday.
According to the IMF real GDP growth is projected to remain subdued at 1.5 percent in FY 2021—consistent with the forecasted course of the pandemic and vaccinations, and global recovery in the WEO baseline— and recover to 4 percent in FY 2022 as the vaccine rollout, confidence, and investment take hold.
Growth is expected to gradually improve, but only reach its medium-term potential of 5 percent in FY 2024, later than envisioned in the first EFF review, due to the large shock and the need for continued fiscal adjustment, which is expected to offset some of impact of the stronger private sector growth on the overall economy.
Average CPI inflation is expected to average 8.7 percent in FY 2021 and 8 in FY 2022, as continued high food prices and energy price adjustments outweigh soft international oil prices and weak domestic demand.
The current account deficit is forecast to widen to 1.5 percent of GDP in FY 2021, as a result of the recovery and it should continue to gradually widen toward 3 percent over the medium term with stronger imports triggered by revived domestic demand and exports.
However, the market determined exchange rate, together with adequate monetary policy, would help strengthen reserve cover to over 3½ months of imports by FY 2025.
— Debt is projected to enter a downward path with narrower twin deficits: public debt is forecast to fall toward 70 percent by FY 2026 and total external debt below 40 percent of GDP by FY 2024.
Substantial risks cloud the outlook, amplified by the Covid-19 pandemic.
These fall under four broad groups: First, high uncertainty—notably around the global recovery and thus the prospects for growth, trade, and remittances—arises from the second wave of the pandemic and emergence of new strains worldwide.
These could reverse the current course of the pandemic in Pakistan and require additional mitigation efforts, especially if domestic vaccination efforts were to stall.
Second, policy slippages remain a risk, amplified by weak implementation capacity and influential vested interests. This particularly affects the fiscal area and thus debt sustainability, including the risk with provinces under-delivering on their commitments to budget parameters.
Third, failures to meet program objectives, including those related to the authorities’ AML/CFT action plan with the Financial Action Task Force (FATF), could hamper external financing and investment.
Fourth, geopolitical tensions could increase oil prices and an adverse shift in investor sentiment affect external financing. At the same time, an upside for growth and program objectives arises from the political calendar: with the senate election having taken place in March 2021, there is a window to accelerate reforms until the general elections scheduled for August 2023.
The Debt Sustainability Analysis confirms that public debt remains sustainable with strong policies, but also points to risks from policy slippages and contingent liabilities.