Ahmed Mukhtar Naqshbandi
ISLAMABAD: Although Pakistan is confronted with many economic challenges like rising inflation, low growth, and low level of foreign exchange reserves, the first five months of the current financial year have ended with some positive developments for the economy, such as containing fiscal deficit and surplus in the primary balance due to effective fiscal management, the monthly economic survey January 2023, released by the Finance Division showed.
The survey said fiscal consolidation is key to saving official reserves and exchange rate stability. This may temporarily be costly in terms of growth prospects in the short term, but long-run prosperity and growth can only be achieved by augmenting the long-term equilibrium growth path of the country by expanding production capacities and productivity, which is a shared responsibility of both the private and public sectors.
Real Sector of Economy
In the ongoing Rabi season 2022-23, wheat crop sowing is estimated at 21.48 million acres which is 94 percent of the targeted area of 22.85 million acres. The timely availability of inputs and government pro-Agri initiatives are playing a role in the revival of the agricultural economy. The Rabi season crop production is expected to increase due to favorable weather conditions with timely rains. During Jul-Dec FY 2023, the agriculture credit disbursement increased by 31.5 percent, reached to Rs 842.4 billion from Rs 640.8 billion compared to the corresponding period last year.
The fiscal deficit during Jul-Nov FY2023 has been contained to the same level of 1.4 percent of GDP as recorded in the comparable period last year. While the primary balance improved during Jul-Nov Y2023 and posted a surplus of Rs511 billion.
The current account deficit reduced to 400 million US dollars in December 2022 as against $ 1857 million in the same period last year, largely reflecting an improvement in the trade balance. Current Account recorded a deficit of $ 3.7 billion for Jul-Dec FY2023 as against a deficit of $ 9.1 billion last year, mainly due to a contraction in imports.
Monetary tightening, import compression strategies, and global pressure recessionary have continued to suppress the manufacturing sector’s performance since the beginning of the current fiscal year. During Jul-Nov FY2023, Large-Scale Manufacturing (LSM) witnessed a contraction of 3.6 percent against the growth of 7.2 percent last year.
On a YoY basis, LSM plunged by 5.5 percent in November 2022, while it grew by 3.5 percent over the previous month. During the period, five out of 22 sectors witnessed positive growth.
These sectors include, Wearing apparel, Leather Products, Furniture, Electrical Equipment, and others while it decreased in Food, Beverages, Chemicals, Tobacco, Textile, Coke & Petroleum Products, Pharmaceuticals, Iron & Steel products, Wood Products, Fabricated metal, Paper & Paperboard, Rubber Products, Non-Metallic Mineral Products, Machinery and Equipment, Automobiles and Other Transport Equipment.
The automobile sector also faced pressure due to the compressed economic environment. During July-December FY2023, Car production, and sale decreased by 33.4 percent and 40.0 percent, respectively, Trucks & Buses’ production and sale decreased by 23.9 percent and 36.4 percent.
Inflation
The CPI inflation was recorded at 24.5 percent on a YoY basis in December 2022 as compared to 23.8 percent in the previous month. On an MoM basis, CPI increased to 0.5 percent in December 2022 compared to an increase of 0.8 percent in the previous month and a decline of 0.02 percent in December 2021. The average CPI in the first Six months of the current fiscal year is recorded at 25.0 percent compared to 9.8 percent during the same period of last year.
FBR Tax Collection
The provisional net tax collection surged by 17.4 percent to Rs 3428.8 billion during Jul-Dec FY2023 against Rs 2919.9 billion last year. The increase in growth is mainly attributed to a 49 percent growth in direct taxes.
Current Account
The Current Account recorded a deficit of $ 3.7 billion for July-December FY2023 as against a deficit of $ 9.1 billion last year, mainly because of a contraction in imports. However, the current account deficit reduced to $ 400 million in December 2022 as against $ 1857 million in the same period last year, largely reflecting an improvement in the trade balance.
Foreign Investment
FDI reached $ 460.9 million during JulDec FY2023 ($ 1114.7 million last year), decreasing by 58.7 percent. FDI received from China $ 131.8 million (28.6 percent), Switzerland $ 89.8 million (19.5 percent), the U.A.E $ 80.8 million (17.5 percent of total FDI), and Japan $ 74.3 million (16.1 percent).
Remittances
In Jul-Dec FY2023, workers’ remittances were recorded at $ 14.1 billion ($ 15.8 billion last year), which decreased by 11.1 percent. MoM basis, remittances decreased by 3.2 percent in December 2022 ($ 2.0 billion) as compared to November ($ 2.1 billion).
