Inflation to remain high, between 21-23%: Pakistan's Finance Ministry

Pakistan's Ministry of Finance has forecast that country's inflation will remain high, between 21 to 23% as the south Asian nation's fiscal deficit widened by more than 115% between July and October

Pakistan's Ministry of Finance (MoF) has forecast that the country's inflation will remain high, between 21 to 23 per cent as the southasian nation's fiscal deficit widened by more than 115 per cent between July and October of the current fiscal year, 2022-2023, reported The Dawn.

"For FY23, economic growth is likely to remain below the budgeted target due to the devastation caused by the floods. This combination of low growth, high inflation and low levels of official foreign exchange reserves are the key challenges for policymakers," alerted the MoF on Friday in its Monthly Economic Update and Outlook report, according to The Dawn.

Pakistan's MoF's Economic Adviser's Wing (EAW) prepared a report which stated that from July-October 2022, the government's fiscal deficit stood at 1.5 per cent of the GDP (Rs1.266 trillion) compared to 0.9 per cent of the GDP (Rs587bn) in 2021.

Higher expenditure growth on the back of higher mark-up payments led to fiscal deterioration. Amidst this, the Pakistan government faces the challenge of providing relief to people in flood-hit areas.

"The EAW report said the average Consumer Price Index (CPI) in the first five months (July-November) of FY23 remained at 25.1 per cent compared to 9.3 per cent in the same period last year. "It is expected that CPI inflation will remain in the range of 21-23 per cent," according to The Dawn report.

The Dawn report said: "The current account posted a deficit of $3.1bn for July-November FY23 against a deficit of $7.2bn last year, mainly due to an improvement in the trade balance."

The current account deficit shrank to $276 million in November from $569m in October.

Despite acknowledging that there were problems with the economy, Pakistan's Finance Minister Ishaq Dar on Friday assured investors that "there is no way Pakistan is going to default."

"We are in a tight position. We don't have USD 24bn in foreign exchange reserves that our (last) government left in 2016. But that's not my fault. It's the system's fault," Darr told investors at a ceremony to mark the listing of Pakistan's first developmental real estate investment trust scheme on the stock exchange, as per the Pakistan news agency.

Dar also criticised "pseudo-intellectuals" for bringing up the possibility of a sovereign default despite the fact that the nation paid up its USD 1 billion Islamic bonds earlier this month.

The Dawn in a recent report, quoted the State Bank of Pakistan saying that the incumbent Pakistan government avoided focusing on growth for the fiscal year FY23, resulting in a drop in growth.

Despite sacrificing growth, Pakistan's government has not been able to achieve price stability and financial stability, the bank said in its annual statement.

Citing international experience, Pakistan's central bank in its annual report said that the countries that prioritise growth at the expense of price and financial stability are not able to "sustain growth and have repeated boom-bust cycles followed by financial crisis.