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Pakistan faces challenges of high inflation, low reserves and growth: Report

ISLAMABAD: Pakistan is currently confronted with the major challenges such as high inflation, low growth, and low levels of official foreign exchange reserves.

The Finance Division has pointed out these key challenges in its monthly Economic Update & Outlook for January 2023, released on Tuesday.

Pakistan’s total liquid foreign exchange reserves increased to $ 9.45 billion on
January 24, 2022, with the SBP’s reserves now standing at $ 3.678 billion. Commercial banks’ reserves remained at $ 5.77 billion.

According to the report, the Consumer Price Index (CPI) recorded at 24.5 percent on YoY basis in December 2022 as compared to an increase of 23.8 percent in the previous month. The CPI inflation recorded at 24.5 percent on a YoY basis in December 2022 as compared to 23.8 percent in the previous month. MoM basis, CPI increased to 0.5 percent in December 2022 as compared to an increase of 0.8 percent in the previous month and a decline of 0.02 percent in December.

During Jul-Nov FY2023, the LSM witnessed a contraction of 3.6 percent against the growth of 7.2 percent same period last year. On YoY basis, LSM plunged by 5.5 percent in November 2022, while over the previous month, it grew by 3.5 percent. During the period, 5 out of 22 sectors witnessed positive growth which includes, Wearing apparel, Leather Products, Electrical Equipment, Furniture, and others while it decreased in Food, Beverages, Tobacco, Textile, Coke & Petroleum Products, Pharmaceuticals, Chemicals, Iron & Steel products, Wood Products, Paper & Paperboard, Rubber Products, Non-Metallic Mineral Products, Fabricated metal, Machinery and Equipment, Automobiles and Other Transport Equipment.
The automobile sector also remained under pressure due to compressed economic environment. During Jul-Dec FY2023, Car production and sale decreased by 33.4 percent and 40.0 percent, respectively, Trucks & Buses production and sale decreased by 23.9 percent and 36.4 percent.
The contraction of automobiles both on the supply and demand front also
suppressed the sale of petroleum products by 19 percent in Jul-Dec FY2023 to 9.0 mn tons from 11.1 mn tons in the same period last year. YoY, oil sales decreased by 11 percent in Dec 2022 to 1.4 mn tons (1.5 mn tons in Dec 2021).
Total cement dispatches declined by 20.7 percent to 21.8 mn tons during Jul-Dec
FY2023, (27.5 mn tons last year). On YoY basis, it declined by 15.6 percent to 3.9
mn tons in December 2022 (4.6 mn tons in Dec 2021).

The Current Account posted a deficit of $ 3.7 billion for Jul-Dec FY2023 as against
a deficit of $ 9.1 billion last year, mainly due to contraction in imports. However, the current account deficit shrank to $ 400 million in December 2022 as against $ 1857 million in same period last year, largely reflecting an improvement in
trade balance. Exports on fob declined by 6.8 percent during Jul-Dec FY2023 and
reached $ 14.2 billion ($ 15.2 billion last year). Imports on fob declined by 18.2
percent during Jul-Dec FY2023 and reached $ 29.5 billion ($ 36.1 billion last year). Resultantly the trade deficit (Jul-Dec FY2023) reached $ 15.3 billion as against $ 20.8 billion last year.

In Jul-Dec FY2023, workers’ remittances recorded at $ 14.1 billion ($ 15.8 billion
last year), decreased by 11.1 percent. MoM basis, remittances decreased by 3.2
percent in December 2022 ($ 2.0 billion) as compared to November ($ 2.1 billion).
Share of remittances (Jul-Dec FY2023) from Saudi Arabia remained 24.7 percent
($ 3470.4 million), U.A.E 18.5 percent ($ 2601.9 million), U.K 14.1 percent ($
1977.2 million), USA 10.8 percent ($ 1526.2 million), other GCC countries 11.6
percent ($1632.2 million), EU 11.0 percent ($ 1544.3 million), Malaysia 0.4
percent ($ 62.3 million), and Other Countries 8.9 percent.

The global economy is perilously close to falling into recession. World Bank has slashed the global economic growth outlook to 1.7 percent for 2023 from its earlier projection of 3.0 percent. Very high inflation has triggered unexpectedly rapid and synchronous monetary policy tightening around the world. Although this tightening has been necessary for price stability, it has contributed to a significant worsening of
global financial conditions, which is exerting a substantial drag on economic activity. Major economies including the United States, Euro area, and the China are all undergoing a period of pronounced weakness.

The spillovers of sluggish growth are exacerbating other headwinds faced by emerging markets and developing economies.

Javed Mahmood
Written By

I am an experienced writer, analyst, and author. My exposure in English journalism spans more than 28 years. In the past, I have been working with daily The Muslim (Lahore Bureau), daily Business Recorder (Lahore/Islamabad Bureaus), Daily Times, Islamabad, daily The Nation (Lahore and Karachi). With daily The Nation, I have served as Resident Editor, Karachi. Since 2009, I have been working as a Freelance Writer/Editor for American organizations.


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