Rising global commodity prices, Covid variants: Finance ministry highlights downside risks to economic outlook

ISLAMABAD: The Ministry of Finance stressed that there are downside risks to the economic outlook associated with the rise in international commodity prices, new variants of the virus and geopolitical dynamics, particularly emerging after the scenario of the August 15 in Afghanistan.

The Ministry of Finance, in its monthly economic update released for September 2021, noted that the government’s growth-oriented policies would lead the economy to higher, inclusive and sustainable growth during the fiscal year. ; However, there are downside risks to the outlook for the Pakistani economy associated with rising international commodity prices, new variants of the virus, and geopolitical dynamics, especially after the August 15 scenario, that emerged in Afghanistan.

The ministry said that “the short-term sustainability of economic growth requires that the trade deficit remains manageable.”

The Pakistani economy is currently on a higher growth path and for long-term sustainable economic growth, expansion of domestic production is vital as the creation of added value would generate income that can be spent on consumption and production. investment.

This can be managed through appropriate long-term structural policies, which are implemented by the government.

The resumption of economic activities at the national level blew up the import bill mainly due to an increase in 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 increase in import bills, 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 money market.

Commodity prices in the world: the increase will have inflationary implications for the country (ministry)

The government’s fiscal consolidation efforts are expected to continue during the current fiscal year; however, development spending has been significantly increased for the current fiscal year to give new impetus to economic growth.

Therefore, with higher development and spending related to Covid-19, overall spending could likely be under pressure.

The budget deficit in terms of GDP was contained at 0.4% (Rs 237.8 billion) in July 2022 compared to 0.5% (Rs 211.6 billion) during the comparable period of last year , while the primary balance remained in surplus and stood at 71 Rs. 7 billion (0.1% of GDP) against 55 billion Rs (0.1% of GDP) during the period under review.

In July 2022, spending under the PSDP increased 72% to Rs 25.3 billion from Rs 14.7 billion in the same period last year.

On the revenue side, RBF tax collection increased 47.4% to Rs 442.3 billion in August, and tax collection exceeded the Rs 94 billion target set for the month. August.

The resumption of economic activity around the world has pushed commodity prices up to unprecedented levels, exerting inflationary pressure globally.

The resumption of economic activities at the national level has significantly increased imports mainly due to an increase in raw materials for consumer and capital goods.

In September, month-on-month inflation could decelerate following 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%.

In the real sector, the finance ministry said overall cotton production is estimated at 8.5 million bales in fiscal year 2022, an increase of 20 percent from 7.1 million bales. Last year.

Cotton production in Sindh is expected to reach 3.5 million bales compared to 1.9 million bales last year.

In the Punjab, cotton production is estimated at 4.5 million bales.

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Sugar cane production could increase in fiscal year 2022, mainly due to an increase in area cultivated and efficient and timely crop management activities.

As for agricultural inputs, the situation remained favorable.

According to the Pakistan Automotive and Manufacturing Association (PAMA), the production of agricultural tractors increased by 38.7% to reach 9,263 in July-August 2021-2022 and its sales also saw an increase of 18.5% to 6,457 , compared to the same period last year.

More importantly, the agricultural credit disbursement target set at 1.7 trillion rupees for 2021-2022, 13.3% more than last year.

Between July and August 2022, disbursement of agricultural credit increased 7.5 percent to 171.6 billion rupees, compared to a disbursement of 159.7 billion rupees during the same period last year.

The urea withdrawal in July 2021 was 622,000 tonnes, an increase of 8.1 percent from July 2020.

The closure of industrial activities during the Eid-ul-Azha holidays and the monsoon rains spread over 15 days also slowed down the growth dynamic.

At the same time, some revision of previous data (fiscal year 2021) was also observed, which resulted in a low rate of growth of LSMs in fiscal year July 2022, as 11 of the 15 sub-sectors of LSM have experienced positive growth.

Automobiles posted massive growth of 44.62 percent, wood products 24.20 percent, chemicals 13.61 percent, iron and steel products 11.34 percent and leather products by 11.72 percent.

The production and sale of cars increased by 111.7% and 92.8%, while the production and sale of tractors increased by 38.7% and 18.5% respectively.

Total oil sales rose 22 percent to 3.9 million tonnes in July-August FY2022 (3.3 million tonnes last year).

In August FY2022, total cement shipments increased 22.8 percent to 4.3 million tonnes (3.5 million tonnes last year).

Based on recent performance and proactive government measures, the industrial sector is expected to follow an upward trend and meet the growth target.

Copyright Business Recorder, 2021

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Natalee Broderick

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