Economic outlook uncertain, likely to remain below target, warns Pakistan’s finance ministry

The Ministry of Finance warned on Friday that Pakistan’s economic outlook has become uncertain and growth will likely remain below target during the ongoing fiscal year.

However, macroeconomic imbalances may ease with the expected slowdown in economic growth, added the ministry’s Economic Adviser’s Wing in its Monthly Economic Update & Outlook for September.

The report said the rise in international oil and food prices witnessed since March 2022 has significantly impacted inflation in Pakistan. The report, however, forewarned that even if international commodity prices would mean-revert in the near future, “domestic inflation may still suffer from delayed adjustments and second round effects”.

“Also, the depreciation of the PKR continues to exert upward pressure on domestic prices.

“At the same time, recent exceptional floods have destroyed human, physical, and livestock capital and deprived many families of their assets and incomes,” said the report.

The Ministry of Finance said that these events will certainly affect the creation of gross value added and hence economic growth, which was already under pressure due to unstable economic conditions in the rest of the world and due to the necessary fiscal consolidation, high rates of interest, and inflation.

The statement comes after record monsoon rains in south and southwest Pakistan and glacial melt in northern areas triggered flooding that has impacted nearly 33 million people in the South Asian nation of 220 million, sweeping away homes, crops, bridges, roads and livestock in damages estimated at $30 billion.

The report said that on the global front, major economies including the US, China, and the EU are slowing, which is affecting other countries, leading to an expected slowdown in global growth.

“Therefore, Pakistan’s external environment faces rising challenges,” it said.

The report said that the recent floods have negatively impacted crops, altering the economic outlook mostly through agriculture performance.

“However, their effects on inflation are being alleviated by prompt government measures to counter forms of price speculation and to provide sufficient supplies by allowing trade from neighboring countries.

“All in all, September may show a halt to the recent drastic accelerations of the YoY inflation rate,” it added.

Commenting on international performance and outlook, the report said the global economy is now in its steepest slowdown following a post-recession recovery since 1970.

“Central banks around the world have been raising interest rates in 2022, a momentum that is likely to continue well into next year. Yet the currently expected trajectory of interest-rate increases, and other policy actions may not be sufficient to bring global inflation down to levels seen before the pandemic.”