Mettis Global News
Mettis Global News
Mettis Global News
Mettis Global News

Trending :

Trade deficit in goods and services to stabilize to $3bn in Aug’21

Share on facebook
Share on twitter
Share on linkedin
Share on whatsapp

August 31, 2021 (MLN): The global economic recovery, especially in Pakistan’s main trading partners, is a healthy sign for stimulating Pakistan’s export growth and workers' remittances.

The momentum in domestic economic dynamism and specific government policies are expected to guide exports of goods and services towards $3 billion in August and beyond in subsequent months.

In its latest monthly economic Update & Outlook for August 2021, the Finance Ministry noted that exports of goods and services, according to Balance of Payments (BoP) data, usually experience negative seasonality during June through September.  

Contrary to exports, the imports of goods and services spiked in June 2021, but return to the normal level in July 2021. Usually, both June and July, but especially June, are characterized by positive seasonal effects. This positive seasonal impulse is expected to disappear in August. On the other hand, other factors, such as the recent increases in international oil prices and the ongoing revival of economic growth, may stimulate imports. It is expected that imports of goods and services will settle at around $6bn in August 2021.

It is expected that the trade deficit in goods and services could stabilize to approximately $3bn in August with expectations about remittances to be stabilized around $2.5bn and taking into account the other secondary income and primary income flows, the current account would remain in deficit at moderate monthly levels of around $ 0.5 billion in the coming month. These expectations depend on the absence of any unexpected negative shocks which may be generated by the potential slowdown of the economic revival abroad (due to loss of confidence, inflation fears, uncertainty for tapering of monetary accommodation and geopolitical risks, along with an increase in international commodity prices, etc.). An international and domestic upsurge in COVID-19 infections remains an important risk factor.

In this regard, the government’s measures to build strategic reserves, especially related to food, along with measures to enhance exports will definitely mitigate the associated risks.

It is pertinent to note that Pakistan’s total liquid foreign exchange reserves increased to a historically high level of $27.3bn on August 23 2021 with the SBP’s reserves now stood at $20.3bn due to IMF (SDR) reallocation of $2.8bn, while commercial banks’ reserves remained at $7.0bn. Strong remittances flows contained the current account deficit at a manageable level without putting any pressure on foreign exchange reserves.

One of the major problems for the masses is the high cost of living which is measured by the consumer price index (CPI).  Pakistan’s inflation rate is mainly driven by current and past fiscal and monetary policies, international commodity prices, USD exchange rate, seasonal factors and economic agents’ expectations concerning the future developments of these indicators. Also, government structural policies to improve the functioning of markets and in particular the food markets play an important role, it added.

In recent months, the YoY inflation rate is on a declining trend. Inflation slowed down to 8.4 percent in July 2021 compared to 9.7 percent of the previous month and 9.3 percent of the corresponding month last year i.e., July 2020.

To note, Pakistan is the net importer of key food items such as wheat, sugar, edible oil and pulses. The current upsurge in international food prices amid the coronavirus pandemic makes it imperative to build strategic reserves of essential commodities to bring stability in the prices of daily-use items. The coronavirus pandemic has played havoc with global food prices due to supply chain disruptions. However, the government consistently providing relief, keeping overall inflation in check.

It is expected that ceteris paribus, YoY inflation is expected to fluctuate around 7.6 – 9.2 percent in August 2021, the ministry anticipated.

According to the ministry report, the fiscal deficit reduced to 7.1 percent of GDP in FY2021 against 8.1 percent of GDP recorded in FY2020. The fiscal deficit has been contained due to a 10.1 percent rise in total revenues that outpaced the 6.8 percent growth in total expenditures during the period under review.

On the revenue side, improved tax collection has been realized both at the federal and provincial levels. A recovery in domestic economic activity has provided significant impetus to overall tax collection, whereas, effective expenditure management helped in containing the current expenditures to the lower side. The FBR tax collection continued to increase, exceeding the target set for the month of July. The provisional net tax collection grew by 42.5 percent in July, FY2022 to stand at Rs414.0bn against Rs290.5bn in the same period last year.

Industrial activity, measured by the LSM index is the sector that is most exposed to external conditions like developments in international markets. LSM shows a remarkable performance during FY2021 and posted a growth of 14.9 percent, against the negative growth of 9.8 percent in FY2020 on the back of governments’ proactive measures in the form of timely resumption of economic activities, subsidized energy tariffs, construction package, relaxation in tariff rates for export-oriented industries and low borrowing costs by SBP.

Since March 2021, the LSM index recorded double-digit YoY growth numbers. In June FY2021, LSM witnessed 18.4 percent growth on a YoY basis (-5.0 percent in June FY 2020). While, on an MoM basis, LSM clocked a growth of 4.4 percent in June FY2021 (-4.2 percent in May FY2021). It is expected that trend will continue in July FY2022 as well. These staggering high growth rates of the LSM output reflect low base effects and also the strong momentum of the current economic expansion.

Recent developments in Pakistan’s macroeconomic indicators are positive. In absence of any major unexpected negative shocks, the economy is moving on a balanced and sustainable growth path. The challenge remains to elevate this sustainable growth path to a higher level.

This requires extending Pakistan’s production capacity and ensuring that a sufficient proportion of this additional production is exported, besides satisfying the needs of domestic consumers. Enhancing production capacity and increasing its efficiency is not possible without directing a larger proportion of the available and future income towards investments, instead of consumption, the ministry said.

Copyright Mettis Link News

 

Posted on: 2021-08-31T10:54:00+05:00

43041