ISLAMABAD: The resumption of economic activities at the national level has caused the import bill to jump, mainly due to an increase in the prices of raw materials for consumer and capital goods, especially in the last three months.
The substantial rise in international commodity prices is the main reason for the rising import bill, which has put pressure on the Pakistani rupee. In addition, the evolution of the geopolitical situation is also exerting pressure on national production and the foreign exchange market.
According to a monthly economic update and outlook report for September released by the Finance Division, the government’s growth initiatives, as well as the building of strategic reserves, especially in the food sector, will help the economy. national level to ensure an adequate supply.
In addition, measures taken by the government to improve exports and ongoing workers’ remittances will certainly mitigate the associated risks.
The report says the economy is currently on a higher growth path. For the improvement and long-term sustainability of economic growth, it is important that it be driven by the expansion of domestic production. The creation of added value generates income that can be spent on consumption and investment. To achieve a sustainably higher growth path, a much larger proportion of value added must be directed to gross fixed capital formation, rather than to consumption.
This can be managed through appropriate long-term structural policies, which are implemented by the government, he said.
In the short term, the sustainability of current growth requires that the trade deficit remains manageable. In this regard, import dynamics are closely watched. Exports can benefit from the current domestic and external economic dynamism. It should be noted that inflation in some of Pakistan’s major export markets is increasing dramatically. However, domestic inflation is expected to decline.
Maintaining the RRSP [Real Effective Exchange Rate] at the current level, the need for rupee exchange rate depreciation is significantly reduced. Government export promotion policies will also anchor the foreign sector.
The world economy grew for the 14th consecutive month in August; however, the rate of expansion has remained slow, possibly due to the spread of the Delta variant in some countries.
After increasing in nine of the previous 10 months, energy prices fell 2.1% in August 2021, prices for non-energy products fell 1%, while prices for agricultural products and fertilizers increased 0.6% and 3%, respectively.
Real sector: According to the Cotton Crop Assessment Committee, overall cotton production will reach 8.5 million bales in FY 22, an increase of 20 percent, from 7.1 million bales l ‘last year.
In July 2021, Large Scale Manufacturing (LSM) saw an increase of 2.3% compared to 8.1% in July 2020. LSM’s performance remained temporarily sluggish due to the shutdown of industrial activities during the holidays in the aftermath of Eid-ul-Azha and monsoon rains, which lasted for 15 days.
However, the latest uptrend in other high frequency variables such as car production and sales, oil sales, cement shipments etc. will boost LSM in the coming months.
The consumer price index (CPI) was recorded at 8.4 percent in fiscal year July-August 22, up from 8.7 percent last year.
Fiscal, Monetary and External: The budget deficit in terms of GDP was contained to 0.4 percent (237.8 billion rupees) in July FY22 from 0.5 percent (211.6 billion rupees) in the year last. In July FY22, spending under the PSDP increased 72 percent to Rs 25.3 billion from Rs 14.7 billion in the same period last year. During the period July 1 to September 3, 2021, the broad currency (M2) observed a contraction of 318.5 billion rupees, compared to a contraction of 181.3 billion rupees during the same period of Last year.
The current account posted a deficit of $ 2.3 billion (4.1 percent of GDP) for July-August FY22 against the surplus of $ 838 million (1.8 percent of GDP) last year . The current account deficit has widened due to the steady growth in the volume of imports of energy and non-energy products such as Covid-19 vaccines, food and metals, as well as an upward trend in its world prices.
FOB exports increased 35.4 percent between July and August FY22 and reached $ 4.6 billion ($ 3.4 billion last year).
The resumption of economic activities around the world has raised the prices of raw materials in an unprecedented manner; thus, putting inflationary pressure on a global scale. The resumption of economic activities at the national level increased imports, mainly due to an increase in the prices of raw materials for consumer and capital goods.
In September, the inflationary impulses of the MoM could come from the second round effects of the previous rise in international commodity prices and the depreciation of the currency.
The inflation rate in September 2021 is expected to be between 7.5% and 8.4%. Since March 2021, the MEI is at a higher level compared to previous months. This is based on favorable developments in high-frequency macroeconomic indicators, which exert strong multiplier effects on the services sector, as well as on the recovery in Pakistan’s major trading partners. Consequently, the MEI should remain significant with the continued dynamism of the creation of domestic added value.
Exports of goods and services for the next month will remain above $ 3 billion due to cautious government measures in favor of exports. Remittances are expected to continue their momentum, therefore the current account deficit will be within a manageable range, according to the report.
Tax collection exceeded the target of Rs 94 billion in August 2021, thanks to vigorous action by the Federal Board of Revenue (FBR) and a strong national economic recovery, laying a solid foundation for more tax collection. raised.
The Pakistani economy is currently on a higher growth path. For long-term sustainable economic growth, the expansion of domestic production is vital, which is managed by appropriate structural reforms introduced by the government.