Some of the major fiscal and external sector economic indicators of Pakistan deteriorated in the first half of current fiscal year, but authorities believe that economic recovery will still continue, albeit, at a slower pace.

The finance ministry on Tuesday released its monthly Economic Updates and Outlook report for January. The ministry used a mix of five and six-month indicators.

The monthly bulletin showed that Pakistan’s budget deficit widened over 21% in absolute terms, exports decreased 4.8%, foreign investment dipped 72% and agriculture sector credit shrank 2.4%. On the other hand, inflation slowed down, large-scale manufacturing increased 7.4% and current account posted a surplus on the back of double-digit growth in foreign remittances.

The finance ministry released its report on the same day the International Monetary Fund (IMF) unveiled its World Economic Outlook Update 2021, where it revised upward the global growth forecast. The International Monetary Fund (IMF) has projected 1.5% growth forecast for Pakistan in the ongoing fiscal year, in its latest World Economic Outlook (WEO). The IMF said that amid exceptional uncertainty, the global economy was projected to grow 5.5% in 2021 and 4.2% in 2022.

The 2021 forecast has been revised up by 0.3% relative to the previous forecast, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies.

Although recent vaccine approvals have raised hopes of a turnaround in the pandemic later this year, renewed waves and new variants of the virus pose concerns for the outlook, said the global lender.

In its report, the finance ministry said the current outlook ensured economic revival based on continued recovery seen in recent months but there was possibility of slower economic activities, especially in the services sector, depending on the intensity and duration of the pandemic.

It added that the declining trend in inflation would continue in January and the reading would remain within a range of 7.2% to 8.2%.

The ministry stated that the economic recovery was expected to translate into more productive investment expenditures in the near term.

However, the statistics released by the ministry did not show that the economy was fully back on track as the Ministry of Finance claimed in previous reports.

According to the ministry, in the first five months of current fiscal year, the overall budget deficit stood at 1.8% of gross domestic product (GDP) as compared to 1.6% last year.

However, the report showed that in absolute terms the budget deficit jumped 21.5% to Rs822 billion in the first five months of current fiscal year. Comparatively, the deficit had stood at Rs676 billion in the same period of previous fiscal year despite a relatively low primary balance.

The finance ministry said total federal expenditures grew 14.5% to Rs2.38 trillion during the July-November period as compared to Rs2.1 trillion in the corresponding period of last year. “On an individual basis, current expenditures grew 15.7% mainly due to higher mark-up payments and Covid-related spending,” said the finance ministry.

It said the expenditures other than mark-up payments and Covid-19 had decreased, reflecting government adherence to the plan of maintaining fiscal discipline.

On the development side, the ministry said, the utilisation of rupee component of the Public Sector Development Programme (PSDP) increased 11.3% to Rs128 billion during the period under review. The ministry did not give full PSDP figures due to almost stagnant spending over last year. This reflects poorly on the economic advisory wing that is hesitant to show the full picture.

The report showed that exports during the July-December period decreased 4.8% to $11.8 billion. Contrary to that, imports rose 4.8% to $23.2 billion. The finance ministry said the sudden surge in imports was due to an increase in international oil prices and import of additional food products, which enhanced imports by $1.2 billion in December 2020 alone.

In the month, commodity prices continued to surge with rates of energy commodities spiking 15% and non-energy commodities rising 4.7%.

Total import bill last month increased to $5 billion and there was no pressure on foreign currency reserves as the current account remained in surplus during the first half.

The ministry said imports may remain in the range of $4.5 billion to $5 billion in January while exports were expected to stabilise around current levels of over $2.2 billion.

The finance ministry said the cyclical position in Pakistan’s main export markets was improving, especially in China but with a lesser degree in other market areas. Foreign direct investment (FDI) saw a dip of 30% and was recorded at only $952 million in the first half of current fiscal year, according to the ministry.

Published in The Express Tribune, January 27th, 2021.

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