Performance of economic indicators presents bleak picture of economy

All major economic indicators except few have deteriorated in the ongoing financial year including inflation rate, foreign exchange reserves, currency value, foreign direct investment and foreign remittances. However, current account deficit and tax collection have improved in the current fiscal year, according to the latest data of the ministry of finance. Inflation measured through consumer price indicator (CPI) has enhanced to 48 years highest level of 27.5 percent in January this year—reportedly higher since 1975. Inflation remained far higher than the projection of the ministry of finance, which had expected it to remain in the range of 24-26 percent. The economic experts believed that inflation would further fuel in the country following the massive currency depreciation and increase in oil products. The government had recently removed an unofficial cap on the USD-PKR exchange rate, as a result of which the local currency lost Rs38.74 between Jan 26-30. Separately, it also hiked petrol prices by Rs35 a liter. The full impact of these measures would be reflected in CPI in next month. The government might also increase the power tariff to fulfill the IMF condition, which would also increase the inflation rate. The IMF is asking for increasing taxes. All these measures would fuel the inflation rate, which is already on the higher side in the country.

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Pakistan’s total liquid foreign exchange reserves have been recorded at $8.747 billion, with the SBP’s reserves standing at $3.087 billion and commercial banks’ reserves remained at $5.656 billion. The reserves were at $22.103 billion at the same period of the previous year as SBP reserves were $15.75 billion. The currency value has depreciated to Rs276.58, according to the State Bank of Pakistan (SBP), which was at Rs176.98 billion at the same period of the last year. FDI reached $460.9 million during July-Dec FY2023 ($ 1114.7 million last year) decreasing by 58.7 percent. FDI received from China remained $131.8 million (28.6 percent), Switzerland $89.8 million (19.5 percent), UAE $80.8 million (17.5 percent of total FDI), and Japan $74.3 million (16.1 percent).The power sector attracted the highest FDI of $237.1 million (51.4 percent of total FDI), financial business $176.0 million (38.2 percent), and oil & gas explorations $89.2 million (19.3 percent). Foreign Private Portfolio Investment has registered a net outflow of $12.9 million during Jul-Dec FY2023. Foreign Public Portfolio Investment recorded a net outflow of $1019.7 million, on account of Sukuk repayment in December 2022. The total foreign portfolio investment recorded an outflow of $1032.6 million during Jul-Dec FY2023 as against an outflow of 405.5 million last. Total foreign investment during Jul-Dec FY2023 recorded an outflow of $571.7 million as against an inflow of $709.3 million last year.

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The current account has improved, as it posted a deficit of $ 3.7 billion for Jul-Dec FY2023 as against a deficit of $ 9.1 billion last year, mainly due to contraction in imports. However, the current account deficit shrank to $400 million in December 2022 as against $ 1857 million in same period last year, largely reflecting an improvement in trade balance. Exports declined by 6.8 percent during Jul-Dec FY2023 and reached $14.2 billion ($ 15.2 billion last year). Imports declined by 18.2 percent during Jul-Dec FY2023 and reached $29.5 billion ($ 36.1 billion last year). Resultantly the trade deficit (July-Dec FY2023) reached $15.3 billion as against $20.8 billion last year.

The provisional net tax collection increased by 17.4 percent to Rs 3428.8 billion during Jul-Dec FY2023 against Rs 2919.9 billion in the same period last year. The increase in growth is largely attributed to a 49 percent growth in direct taxes. The fiscal deficit during Jul-Nov FY2023 has been contained to the same level of 1.4 percent of GDP as it was recorded in the comparable period last year. While the primary balance improved during July-Nov FY2023 and posted a surplus of Rs 511 billion (0.6 percent of GDP) against the deficit of Rs 36 billion (-0.1 percent of GDP) last year.

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The ministry of finance noted that expenditures would increase and revenue collection would be affected. “Rising interest payments due to increase in domestic and foreign interest rates as well as flood-related spending can put extensive pressure on overall spending”. Furthermore, despite massive import compression. FBR tax collection has increased by more than 17 percent, yet it has registered a shortfall of Rs 217 billion in the first half of the current fiscal year. In light of current global and domestic economic conditions, FBR is facing a difficult task in meeting the full-year target.