Budget: Govt plans to limit current account deficit to 1.7% of GDP

Annual Plan Coordination Committee envisages GDP growth of 3.5%

Mehtab Haider
Containers are seen on a shipping dock. — Reuters
Containers are seen on a shipping dock. — Reuters

  • APCC envisages GDP growth of 3.5%.
  • Govt body sets inflation target at 21%.
  • External sector is expected to improve.

ISLAMABAD: Envisaging real GDP growth rate of 3.5% and inflation at 21%, the Annual Plan Coordination Committee (APCC) Friday granted its approval of current account deficit (CAD) at $6.2 billion or 1.7% of GDP for the next budget 2023-24.

The CAD was restricted at 1.1% of GDP for the outgoing financial year ending on June 30, 2023. It shows the import restriction policy was projected to continue to a larger extent under the policy prescription adopted by the government for the upcoming budget.

It is not yet known how the government is going to satisfy the IMF on macroeconomic projections for the next financial year.

According to the macroeconomic framework approved by APCC, the external sector is expected to improve upon falling global commodity prices besides lesser dependence on wheat and edible oil import due to higher domestic production.

The market-based exchange rate, favourable pro-export policies and easing of administrative import controls are expected to improve the performance of export industries in 2023-24.

Moreover, workers’ remittances will ameliorate through formal channels once the gap between inter-bank and open market exchange rates is settled.

Similarly, capital flows pertaining to flood-related Geneva pledges are expected to further improve the Balance of Payments position.

The economic outlook for the next year is positive with a growth target of 3.5% against 0.29% for the ongoing financial year.

“The revival of growth hinges upon political stability, external account and macroeconomic stability amid expected fall in global oil and commodity prices”, it said.

With falling global inflation, domestic inflation is expected to reduce gradually next year, but will remain in double digits. Agriculture is expected to grow at 3.5% in 2023-24 which will be contingent upon favourable weather conditions, ample water availability, certified seeds, fertilizers, pesticides and agriculture credit facilities at affordable costs.

Moreover, increased productivity of the livestock subsector is imperative for the revival of the agriculture sector.

The revival of cotton and sufficient production of wheat will not only support growth momentum but will also ease out Balance of Payments pressures through lesser import requirements.

The industrial sector is expected to recover in 2023-24 as demand and supply shocks are likely to dissipate. It is expected the sector will grow by 3.4% with LSM at 3.2%.

The industrial sector is expected to get a boost from improved inputs and energy supplies on the back of anticipated fall in global oil and commodity prices, public sector expenditure and mega projects for infrastructure development.

However, there are downside risks of high-interest rates and exchange rate uncertainties which may raise the costs of working capital and raw material.

Similarly, construction in the housing sector and infrastructure projects may be affected by higher prices of construction materials.

The services sector is also expected to grow at 3.6%. The envisaged growth in commodity-producing sectors will complement the targeted growth in the services sector.

The uptick in economic activity in the agriculture and manufacturing sectors will translate into increased growth in wholesale and retail trade and transport, storage and communications.

Moreover, the tourism industry is expected to gain momentum and generate socioeconomic dividends that will have a trickle-down effect on retail trade, hotels and restaurants.

The investment-to-GDP ratio is expected to increase from 13.6% in 2022-23 to 15.1pc in 2023- 24 due to stabilisation and political stability. Fixed Investment is expected to grow by 40.5% on a nominal basis, whereas, as a percentage of GDP, it is expected to increase from 11.9% in 2022-23 to 13.4% in 2023-24. The National Savings rate is targeted at 13.4% of GDP.

The fiscal deficit is expected to narrow on the back of fiscal consolidation measures with a focus on curtailing subsidies and the energy sector’s circular debt.

The monetary policy stance will remain aligned with the objectives of growth revival and inflationary expectations. With falling global inflation, domestic average inflation is expected to gradually reduce to 21% next year.

Originally published in The News