Keeping in view the performance of various economic indicators, the economic recovery, which has accelerated since March 2021, is expected to continue, stated the Monthly Update and Outlook for October 2021, released by the Ministry of Finance on Thursday.

“Increased production stimulates exports, while supply side-induced increase in domestic production may partially substitute for imported products,” the report said.

“On the other hand, the need for necessary intermediate inputs in the production process also increases. The increased income generated by economic growth also raises the demand for domestic and foreign products.”

It added that efforts were being made to curb unnecessary imports, which did not contribute to the expansion of domestic production.

Nevertheless, the economic growth may take place with a current account deficit, it stated, adding that it was normal for emerging and developing countries to have current account deficits, financed by financial inflows from developed nations.

“It is strongly believed that as long as the deficits are manageable, their contribution remains productive for achieving a higher and sustainable growth trajectory, necessary for the convergence of per capita income with developed countries,” it added.

According to the report, the fiscal deficit by the end of first two months of fiscal year 2021-22 was restricted to last year’s level.

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“The government is following a careful expenditure management strategy to ensure that critical areas are not ignored and sufficient resources are available for growth-oriented and social security-related programmes,” the finance ministry wrote. “These measures would pave the way for better fiscal prospects and sustained economic recovery.”

On the revenue side, the report added, the Federal Board of Revenue (FBR) had been focused on sustaining the successful streak of surpassing the tax collection target during the first quarter of fiscal year 2021-22 and it had already taken a number of initiatives in this regard.

“The board is implementing digitalisation and automation of various processes involved in revenue collection.”

The report mentioned that the launch of point of sale (POS) and track and trace system were examples of such initiatives.

Furthermore, the FBR has taken a number of measures to promote economic activities through maximum facilitation to taxpayers.

“All this augurs well for sustaining the momentum of tax collection achieved during first quarter of the ongoing fiscal year,” the report added.

As per the report, the FBR is on course to achieve the revenue target set for fiscal year 2021-22.

On the external side, it highlighted that imports of goods and services in September were marginally lower than the levels observed in August.

The persistent rise in international oil prices, exchange rate pressure and increase in domestic economic activities lifted the import demand, it said.

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“Given the recent dynamics, it can be expected that imports will remain at elevated levels in the following months,” the report said. “Therefore, the recent steps taken by the government with regard to the monetary policy and the measures initiated to discourage unnecessary imports would be helpful in containing the strong expansion recorded in recent months.”

As expected, exports of goods and services crossed the $3 billion mark, aided by the strong recovery in main export markets of Pakistan and targeted policies of the government to stimulate exports.

“These dynamics are expected to keep exports above the $3 billion mark in the months ahead,” it said.

As a result of these events, the trade deficit of goods and services retreated from the level observed in August and is expected to first stabilise and then decline in the months ahead, the report forecast.

The report added that the inflation rate was mainly driven by monetary and supply side factors ie domestic and international commodity prices, rupee-dollar parity, seasonal factors and economic agents’ expectations concerning the future developments of these indicators.

Government’s structural polices to improve the functioning of market structure particularly the food markets play an important role.

From May to September 2021, year-on-year inflation observed a downward trend. The government is committed to ensure smooth supply of essential commodities in domestic food markets to protect livelihood of the people.

Published in The Express Tribune, October 29th, 2021.

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