ISLAMABAD: Pakistan is likely to maintain a conducive growth in the 2nd half of the fiscal year 2022 (2HFY22), as the economic outlook for the rest of FY22 predicts a systematic balance between the imperatives of economic development and the external sector vulnerabilities, reports WealthPK.
According to the Mid-Year Economic Review (July–December) published by the Ministry of Planning, despite significant worldwide geopolitical negative risks and rising commodity super cycle phenomena, the economy is likely to grow at roughly 4.8% in FY22 as predicted by the National Economic Council (NEC). Although the industrial sector may fall short of the objective, the services sector is expected to outperform it.
The economic forecast for the remaining months of FY22 is likely to result in an orderly rebalancing between the imperatives of economic development and resolving the external sector vulnerabilities, thanks to the commencement of the International Monetary Fund (IMF) programme.
Given the strong performance of the Kharif crop and the chances of a robust wheat harvest, the agricultural sector is anticipated to meet its full-year growth target of 3.5%. However, during the Rabi season, the supply of approved seeds and pesticides is critical to the agriculture sector’s growth. Furthermore, regular availability of water and agricultural financing facilities will aid in the achievement of the desired increase.
The industrial sector was expected to rise by 6.5% based on a 6% objective for large-scale manufacturing (LSM). However, due to the revised full-year LSM number for FY22, reaching the desired 6% rise is now unlikely. Another difficulty for the industrial industry is the high cost and limited quantity of energy inputs. Due to the building amnesty plan and availability of concessional loans for the housing industry, the construction sector is likely to develop at a virtuous rate.
The growth in the services sector is mostly reliant on the performance of commodity-producing sectors and imports. The predicted recovery in the commodity-producing sector as well as higher-than-expected import growth would boost the service sector development. The social and community services industry will benefit from increased financial intermediation and a 38% increase in IT-related services.
In comparison to the previous year, foreign direct investment (FDI) increased by 20% in 1HFY22. The financial, communication, oil and gas exploration, and power generation sectors have seen the most investment. In addition, for the first time in the history of Pakistan, lending to the private sector has surpassed Rs 1 trillion, indicating buoyant market sentiments and appetite for finance.
It is expected that previous inflation projections will be surpassed by a fair margin. However, the external sector objectives will only be partially met. The import targets are likely to be exceeded by a wide margin. This will result in larger current and trade account deficits than expected.
Fiscal dynamics are also influenced by the fiscal measures suggested in the parliament’s newly adopted Supplementary Money Bill. Based on events in FY22, the increased cost of COVID-related vaccinations and social protection is anticipated to make maintaining close to the FY22 total budget deficit objective difficult.
Despite the fact that the economy is recovering, inflation and external sector pressures continue to plague the economy. To combat these negative risks to the economy, the government is using a variety of legislative, administrative, and relief measures.
INP
