MoF report admits inflation to rise further in FY23, stay elevated

ISLAMABAD – The Economic Advisory Wing of the Ministry of Finance in its ‘Debt Sustainability Analysis (DSA) Report has conceded that inflation, measured as CPI, was expected to rise in FY23 to 28.5pc on average due to uncertain political and economic environment, pass-through of currency depreciation, and the rise in energy prices and stay at 21pc even in the next fiscal year.

MoF, however over the medium term, projected the inflation to trend down from 7.5 to 6.5pc amid hopes of a stable exchange rate, better crop outlook, political stability and high base effect.

According to the report, due to deterioration in major debt sustainability indicators over the first half (July-December) of the current fiscal year, the government feared the gross financing needs to remain high, posing several liquidity risks due to high-interest rates and pressure on the external account with average inflation at 28.5 per cent this year and staying stubborn at 21pc even in next fiscal year.

The Economic Advisory Wing said, public debt risks remain high and heatmap depicted a high risk since the debt- and GFN-to-GDP (gross financing needs to gross domestic product) ratios exceed“the IMF’s DSA thresholds in FY23, both in baseline and shock scenarios, it said.

The government admitted that in the prevailing global scenario reducing the current inflationary pressures would take some time and should not be done at the expense of recession.