January 27, 2022: The economy of the country continues to show healthy value-added creation as its cyclical position is largely balanced and the trend growth rate of potential output remains strong, according to the monthly Economic Update and Outlook for January 2022.

According to the document released by the Finance Ministry here Thursday, although this path was expected to continue, a number of risk factors were also present at the horizon.

It noted that a first risk factor was the surge of the omicron variant of the COVID-19 disease which, as experienced in other countries, showed that this variant was far more infectious than previous variants.

On the other hand, its capacity to cause severe illness also looks to be impaired significantly, it said, expressing the hope that the SARS-CoV-2 virus that caused the COVID-19 pandemic might gradually converge to other known milder respiratory diseases that could be managed without causing too much damage to peoples’ personal health and to their economic welfare.

A second risk remains the stress on the external balance, it said adding although the current account deficit remained high, the baseline scenario remained that the excess of imports over exports would gradually ease in the coming months.

“This expected tendency is enforced by government measures designed to stimulate exports and moderate import demand. The monetary policy decisions are also supportive in this respect,” the report added.

Thirdly, inflation is high and on year-on-year (YoY) it is expected to remain in double digits in the coming month, it added.

The report noted that the YoY increase in the CPI index was, to a large extent, a backward-looking indicator and was not only determined by current price movements, but also by what happened 12 months ago, when international commodity prices were at the lower areas of their current price cycles, whereas now they are at the upper levels of these cycles.

It highlighted the importance of monitoring future Month-on-Month (MoM) price movements as containing these price dynamics would determine further developments in the consumer’s cost of living.

It said, the government measures, accompanied by the support of monetary policy, were directed to protect consumers’ purchasing power in the future.

If these future MoM price movements were stabilized, the YoY inflation would automatically fall back to levels that were suited for supporting Pakistan’s economic development.

In that sense the current surge of the YoY inflation rate was a temporary phenomenon, it added.

Presenting status of the monthly performance of Pakistan’s economy, the outlook said, Pakistan Bureau of Statistics (PBS) has made rebasing exercise in which it has been found that growth in FY2021 increased to 5.57 percent adding the momentum would continue in FY 2022 on the basis of favorable movement in high-frequency variables.

The overall LSM posted a growth of 3.3 percent during July-November FY2022 against the growth of 6.9 percent same period of last year. During the period, 11 out of 15 subsectors of LSM have witnessed positive growth.

The Consumer Price Index (CPI) inflation during July-December was recorded at 9.8 percent against 8.6 percent during the same period last year whereas, on a month-on-month (MoM) basis, CPI recorded a decline of 0.02 percent in December 2021 against an increase of 3.0 in November 2021. The overall spike in CPI is due to an increase in the prices of imported items.

According to the report, the fiscal deficit during July-November FY2022 stood at Rs 951 billion against Rs 822 billion in the same period of last year.

In terms of GDP, the fiscal deficit has been contained at 1.5 percent, the same level as in the comparable period of last year. Whereas the primary balance posted a deficit of Rs 36 billion (0.1 percent of GDP) during July-November FY2022 against the surplus of Rs 216 billion (0.4 percent of GDP) last year.

Meanwhile, the net provisional tax collection by the Federal Board of Revenue (FBR) increased by 32.5 percent to reach Rs2919.7 billion during the first half of FY2022 against Rs 2204.1 billion in the same period of last year. The net collection has exceeded the target of Rs. 2,633 billion by Rs. 286.5 billion.

Keeping in view the overall macroeconomic environment, the State Bank of Pakistan (SBP) has maintained the policy rate at 9.75 percent. During 1st July – 31st December, FY22 money supply (M2) witnessed growth of 4.5 percent (Rs. 1,104.1 billion) as compared to growth of 5.6 percent (Rs. 1,162.8 billion) in last year.

Within M2, Net Foreign Assets (NFA) witnessed a contraction of Rs 211.4 billion as compared to an increase of Rs 579.8 billion in last year.

The Foreign Direct Investment in July-December reached $1056.6 million ($ 879.7 million last year) increased by 20.1 percent whereas the workers’ remittances during the period reached $ 15.8 billion ($ 14.2 billion last year), increased by 11.3 percent. Workers’ remittances continued their unprecedented streak of above $ 2.0 billion for the 19th consecutive month in December 2021.

The country’s total liquid foreign exchange reserves increased to $23.1 billion on January 19, 2022, with the SBP’s reserves now standing at $16.8 billion, commercial banks’ reserves remained at $6.3 billion.

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