Economy continues upward trajectory, compatible with 5% growth target in FY22: Ministry

March 28, 2022 (MLN): Pakistan’s economic performance continues to be strong and is still on a trajectory compatible with an economic growth target of around 5 percent in the current fiscal year, said Monthly Economic Update & Outlook for March 2022 issued by Ministry of Finance today.

Its cyclical position has returned to a more neutral stance. If this trend continues in the next months, economic growth will be driven primarily by the expansion of manufacturing capacity. However, the intensity of internal and external risks has still not been exactly realized which may adversely affect domestic economic activities, it noted.

The domestic and international scenario has begun to change which may have implications for the economic recovery. Thus, inflationary and external sectors risks are coming into action to build macroeconomic imbalances, it said.

The Monthly Economic Indicator (MEI) remains strong, although some slowdown in growth in Feb 2022 is observed. This observation is based on movements in macroeconomic high-frequency indicators such as growth in LSM (which is known to exert strong multiplier effects in services sectors) and growth in imports.

In addition, economic growth in Pakistan’s main trading partners continues to remain above trend, although some slowdown may be in the cards due to the uncertainties surrounding the recent geopolitical tensions and the continued increase in international commodity prices. If these tensions continue or intensify, Pakistan’s growth may be affected as well.

To note, MEI is based on combining monthly data of indicators that are proven to be correlated with GDP at constant prices.

The report further added that inflation and the current account deficit are still under pressure. The government is taking possible measures to contain the current pass-through of this increase into domestic consumer prices, especially through relief packages. Still, YoY inflation is expected to remain within the 9.5 to 11.5 percent territory.

Moreover, the government measures designed to stimulate exports and discourage unnecessary imports are expected to contribute to constrain current account deficit. The recent geopolitical tensions, in particular the Ukraine crisis, is the most important external risk factor, it added.

Likewise, domestic political conditions are building domestic risks. A further escalation of these risks could hamper the positive outlook for Pakistan’s economy and may also aggravate the macroeconomic imbalances.

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