By Staff Reporter
ISLAMABAD: Pakistan’s economy is expected to remain weak throughout 2023 due to stricter financial conditions and a lack of fiscal flexibility, the government said on Wednesday.
The Economic Advisory Wing of the Ministry of Finance in ‘Debt Sustainability Analysis (DSA) Report said major debt sustainability indicators deteriorated over the first half of the current fiscal year, and the government is fearing the gross financing needs to remain high, posing several liquidity risks due to high-interest rates and pressure on the external account with average inflation at 28.5 percent this year and staying stubborn at 21 percent even in the next fiscal year.
The government lowered its GDP growth rate forecast to 0.8 percent – slightly above 0.4 to 0.6 percent projected by the IMF, World Bank, and Asian Development Bank – against budget estimates of 5 percent.
“The real GDP growth is projected at 0.8 percent in FY23 on account of catastrophic floods, tight monetary stance, fiscal consolidation, and non-conducive global economic environment.
The report projected a rise to 5.5 percent in FY26, but coordinated efforts would be needed between the federal and provincial governments to ensure sustainable economic development.
The report said total public and publicly guaranteed debt stood at Rs55.8 trillion in December 2022 – 7 percent higher compared to end-FY22, attributed to the increase in the interest burden due to the high-interest rate environment and the 11 percent depreciation of Pakistan’s Rupee against the US dollar experienced in 6MFY23.
Consumer inflation, measured as CPI, was expected to rise in FY23 to 28.5 percent on average due to an uncertain political and economic environment, pass-through of currency depreciation, and the rise in energy prices and stay at 21 percent even in the next fiscal year.
Over the medium term, however, the ministry projected inflation to trend down from 7.5 to 6.5 percent amid hopes of a stable exchange rate, better crop outlook, political stability, and high base effect.
The report emphasized the need for coordinated efforts between the federal and provincial governments to ensure sustainable economic development in the medium term. The government must take action to reduce current inflationary pressures steadily, but not at the expense of recession.
The actions implemented should steadily lower the inflation rate’s future course to 6.5 percent by FY26, more in accordance with steady and sustainable economic growth.
During the first half of FY23, the successful completion of the 7th and 8th review under the IMF Extended Fund Facility (EFF) led to the disbursement of $1.166 billion besides a $1 billion rollover by China of its SAFE deposit and $3 billion of Saudi time deposit.
Furthermore, the government received $3.298 billion from multilateral agencies. On the other hand, the government repaid $2.722 billion and $1 billion on international commercial loans and international Sukuk maturity, respectively.
The report said domestic debt accounted for 62.8 percent of total public debt, with the remaining being external debt. Domestic debt comprised permanent debt (medium-and long-term), floating debt (short-term), and unfunded debt (primarily made up of various instruments available under the National Savings Schemes).
On the other hand, 37.2 percent of total public debt is external debt, which is owned by multilateral development partners, bilateral creditors, and commercial sources.
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