The Ministry of Finance on Wednesday anticipated a surge in economic activities despite the uncertain pandemic situation but warned that transition to higher growth could build pressure on external accounts.
“In the transition towards a better potential growth level, pressure are often built on external accounts,” the economic adviser’s wing of the finance ministry said in its Monthly Economic Outlook (MEO) for July, calling for close monitoring to make sure that the new growth strategy is sustainable with none macroeconomic imbalances as observed within the past.
The report said the target of recent accommodative monetary and monetary policies was to place Pakistan’s economy on higher growth trajectory and therefore the economic recovery in Pakistan’s main exporting partners was making the external environment favourable. However, recent deadly floods in Germany, China, India, and North America may raise direct and indirect economic losses along the worldwide supply and trade chains.
It said the surge in economic process was expected to continue in FY22 on account of reopening of economic activities and acceleration in vaccination process. the danger of pandemic still exists, however, the govt might not follow complete lockdown given the general public behaves responsibly by following the Covid-related SOPs.
The report said the year-on-year (YOY) rate of inflation was on a declining trend within the recent months and was expected to continue within the absence of any major shock. the buyer price level (CPI)-based inflation decelerated to 9.7 per cent on YoY basis in June 2021 as compared to 10.9pc within the previous month. the typical inflation for the whole financial year stood at 8.9pc.
On month-on-month (MoM) basis, it decreased by 0.2pc in June 2021 as compared to a rise of 0.1pc within the previous month and a rise of 0.8pc in June 2020. the costs of non-perishable food items increased by 12.9pc on YoY basis and declined by 1.7pc on MoM basis. It attributed the MoM inflationary impulses in July to the second round effect of previous increase in international commodity prices, from recent increase in gasoline prices, currency depreciation and monetary expansion.
Furthermore, the month of July tends to point out a positive seasonal inflation effect. On the opposite hand, international food prices declined in June and continuously being monitored. The dividends of positive market intervention may ease the pressure on prices and as a result YoY inflation in July, 2021 is predicted to decelerate keeping it within the range of seven .5-9pc.
The report said that despite significant challenges, the present fiscal performance was largely in line with government’s strategy to make sure fiscal discipline, increasing revenues and controlling expenditures. The continuation of current fiscal strategy would ensure future fiscal discipline and sustainability.
The report said the economic process momentum has strengthened considerably since March and has remained robust during the half-moon of FY21. Balance of payment data revealed strong expansion of imports of products and services, especially in June. Imports in June increased by $1.6 billion as compared to May thanks to seasonal factors. it’s expected that in coming months, imports of products and services may settle below the extent observed in June.
The observed growth momentum is driven by production side of the economy. this is often also reflected within the exports of products and services, which consistent with BOP data increased by about $0.5bn in June as compared to May. it’s expected that exports will remain at an equivalent level and consequently balance of trade in goods and services will improve in coming months.