Pak’s economy may slow down beyond target
Pakistan’s economy could slow above target levels in the current fiscal year as the government decided to allocate development funds to combat the devastation caused by the floods to help people recover and their livelihoods. “The PSDP (Public Sector Development Program, or Development Fund) is being diverted … to cope with the floods,” Treasury Secretary Miftah Ismail announced Friday in a speech at the Institute of Business Administration (IBA).
“The PSDP is good for the economy. It supports economic activity (and employment), “he noted.
Previously, the government has allocated Rs 800 billion for development works such as construction of road networks, dams, telecommunications and energy infrastructure. In June 2022, it set an economic growth target of 5% for the current fiscal year 2022-23.
However, heavy monsoon rains and flash floods changed the economic landscape. The government initially estimated flood losses at $ 10 billion due to widespread damage to standing crops of cotton, rice, sugarcane and vegetables.
It previously discouraged imports through heavy tariffs to cool the overheated economy. Floods and high inflation are now feared to push the economy far below target. The finance minister said he feared that industries including banks, fertilizers, cement and steel will approach the government to ask for subsidies to tackle flood problems.
He revealed that he was considering imposing a 5% tax on all those industrial units that shipped less than 10% of their production to foreign markets. However, he was unable to do so given the new challenges posed by the massive floods. According to the minister, an increase in export earnings is the only way to get the country out of the current account deficit cycle, as the country’s imports remain much higher than exports.
When a student asked what the timetable was for increasing exports, the minister replied: “he has no plans”. He asked the faculty and students of the IBA to conduct studies to propose a roadmap for increasing exports. “I would also contact the LUMS faculty and students soon to investigate how to boost exports.” Pakistan’s economic structure was tainted by a high recurring trade deficit. The country had an import value of $ 80 billion in the previous fiscal year and an export value of $ 30 billion, the minister stressed.
“Thanks to $ 31 billion in employee remittances that funded the main trade gap in fiscal 22,” he said.
However, the external economy started to improve due to the contraction in trade and current account deficits. Due to this development, the rupee has stabilized in recent days. However, Ismail rejected all rumors that the central bank would intervene (by delivering the dollar to the interbank market) to support the rupee against the US dollar.
“Foreign exchange inflows were recorded at $ 6.98 billion last month (in August) and outflows at $ 6.86 billion, suggesting that foreign exchange supply and demand in the economy has stabilized.”
Pak’s economy may slow down beyond target
The central bank with a small amount of foreign exchange reserves of around $ 10 billion can no longer afford to inject dollars into the market to support the rupee. “I will not inject a single dollar,” the minister noted.
