Wednesday May 25, 2022
ISLAMABAD: In line with the mounting inflationary pressures and expected slowdown in the gross domestic product (GDP) growth, economic planners are having difficulty preparing the budget for the next fiscal year 2022-23, The News reported Wednesday.
Keeping in view the prevailing situation, the general public will likely continue to face double-digit inflation in the range of 11-12% in the next fiscal year, along with an increased risk of food shortages.
CPI-based inflation stood at 13.4% in April 2022. Forecasts put it in the range of 11.8% to 12.5% on average for the outgoing fiscal year ending on June 30, 2022.
For meeting domestic consumption requirements and maintaining strategic reserves, Pakistan would have to import four to five million tons of wheat in the next fiscal year 2022-23.
The lingering Russia-Ukraine war might impact wheat exports by 40%, with India which has 20% share in the global wheat market already having slapped a ban on exports. This would choke the wheat market by up to 60%.
The current price of wheat in the international market stands at $570 per ton. After inclusion of operation, handling and logistics cost of imports, the cost would stand at Rs150 per kg in the domestic markets.
Pakistan used to import palm oil from Indonesia. But the country has banned the export of palm oil and now Islamabad has to explore other markets. Keeping the rising price of palm oil in the international market, the price of cooking oil/ghee in the domestic market would shoot up too.
As a staple, one could have relied on rice, as its production remains good. But the commodity was meant for exports, leaving the domestic market reeling from the surge in prices.
While rising inflation is currently a global phenomenon, and has touched 9% in the UK, and 8.3% in the US, the risk of food shortages in the South Asia region including Pakistan looms large.
Without creating buffers in foreign exchange reserves and food stocks the country of over 220 million might plunge into a serious crisis-like situation.
Top official sources at the Ministry of Finance and Ministry of Planning told The News in background discussions that real GDP growth was projected to nosedive to stand in the range of 4-4.5% for the next fiscal budget compared to 5.97% provisional estimates for the outgoing fiscal year.
This projection clearly indicates that the boom and bust cycle would persist and Pakistan would again suppress demand by tightening fiscal and monetary policies to achieve stabilisation under the prescription of the International Monetary Fund (IMF) and other lenders.
Sharp and deep adjustments on the fiscal front suggested by the IMF might trigger “stagflation”, lowering GDP growth and rising inflation at an accelerated pace.
On the fiscal front, the country’s budget deficit might hover around Rs4.5-5 trillion equivalent to around 8% of the GDP for the outgoing fiscal year.
Budget makers at least on paper wanted to curtail the budget deficit in the range of slightly over 6% of GDP so the government would have to make adjustments of 2% of GDP, equivalent to Rs1,500 billion for the next fiscal year.
They have to come up with innovative ideas to fetch additional tax revenues and restrict increasing expenditures in order to narrow the yawning budget deficit.
On the external front, it has been projected that the current account deficit would remain on the higher side mainly because it would be hard to slash down imports in any substantial manner. Imports of goods would be touching $71-72 billion for the current fiscal year as they stood at close to $60 billion in the first ten months of the current fiscal year.
The imports have been projected to remain in the range of $65-67 billion in the next fiscal year 2022-23, with little room to suppress the demand for imports.
The government would have to shift focus toward higher exports and remittances to increase reliance on non-debt creating dollar inflows during the next fiscal year.