Inflation likely to surge in Pakistan, ADB forecasts

Business

ISLAMABAD (Eshfak Mughal):- The Asian Development Bank has forecased that Pakistan could face inflationary pressure due to economic recovery and risen oil prices during the current fiscal year.

The bank has published it’s report “Asian Development Outlook (ADO) 2021″ (ADO) 2021 today during the current fiscal year, Inflation in the country is projected to slow to 7.5% in FY2022.

The bank said that the price rises for other goods are expected to moderate due to tax relief in the FY2022 budget but it also said that the country could face more inflation in the coming days.

” Inflationary pressures will likely come from ongoing economic recovery and rising global oil prices”, it said.

The bank also suggested that this pressure should be tempered by expenditure reform and the government’s commitment not to borrow directly from the central bank. Risk of inflation higher than forecast derives from any unusual increase in oil prices or from potential currency depreciation in the wake of any early winding down of the ongoing IMF program.

The fiscal deficit is forecast to narrow to the equivalent of 6.9% of GDP in FY2022, which is still higher than the target set earlier under a medium-term fiscal consolidation program
supported by the IMF. Growth in revenue is projected to accelerate with the rapid pickup in domestic economic activity and higher imports. Further bolstering revenue growth are the introduction of new tax measures under the Finance Act, 2021; a renewed focus on streamlining tax exemptions; and additional policy and administrative measures to broaden the tax base. Expenditure is also projected to rise in FY2022, as the government has budgeted substantial increases in subsidies and in social and development spending to protect the vulnerable and fortify growth and economic recovery.

Pakistan’s public debt outlook is sustainable in the medium term. With primary and fiscal deficits, high borrowing costs, and currency depreciation, public external debt reached $95.2 billion in FY2022.

However, the government has been implementing a medium-term debt strategy for FY2023.

According to the report the country’s economy is expected to continue recovering in the current fiscal year. The real GDP with rise by 4 percent during the current fiscal year mainly due to agriculture and industrial recovery during the current fiscal year.

This growth forecast assumes recovery in
private investment as consumer confidence and business activity improve amid the ongoing vaccination rollout and various economic stimulus measures announced in the budget for FY2022. It also assumes the resumption of structural reform later in the year in an ongoing program under the International Monetary Fund (IMF) Extended Fund Facility. The economic outlook is clouded, however, by high uncertainty because it is closely tied to the course of the
pandemic in Pakistan and globally.

On the supply side, the outlook for agriculture is encouraging in view of the government’s ambitious Agriculture Transformation Plan.

Growth in industry is forecast to improve driven by fiscal incentives announced in the budget.

The maturity structure of public debt has improved by reprofiling public debt into longer-term instruments. With strong economic growth prospects for FY2022 and beyond, public debt remains on a downward path over the medium term.

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