ISLAMABAD, Pakistan: The Ù˜Ministry of Finance has projected 21.0 percent Consumer Price Index (CPI) Inflation and 3.5 percent Real GDP Growth Rate for the Fiscal Year 2023-24.
Medium-term Macroeconomic Projections (Percent)
Indicator | FY2022 | FY2023 | Projections | ||
FY2024 | FY2025 | FY2026 | |||
| Real GDP Growth Rate | 6.1 | 0.29 | 3.5 | 5.0 | 5.5 |
| CPI Inflation | 12.2 | 29.2 | 21.0 | 7.5 | 6.5 |
Source: EA Wing’s Medium-term Projections, based on available information
In its Fiscal Risk Statement FY 2023-24 Report, the Finance Division noted that the pace of economic activity during the FY2023 has been significantly constrained due to several factors, such as demand compression measures, losses in agricultural production caused by floods, uncertainty regarding the resumption of the International Monetary Fund (IMF program), a difficulty in meeting external financing needs and maintaining foreign exchange reserves.
The inflation outlook has deteriorated, and there is heightened risk to external stability. The uncertainty surrounding the future adjustment path in energy prices is the main upside risk to the inflation outlook.
However, a potential moderation in international commodity prices may contribute to a reduction in inflation.
Further, exchange rate adjustments, passing on the impact of energy price increases, and interest rates on higher side would enable the prices to decline over the medium term.
Subsequently, it would follow the expansionary monetary policy and improvement in fiscal space in view of decline in mark-up payments. As such, the stabilization measures taken during the last one year can bring macroeconomic and fiscal benefits in the medium-term.
Click Here to Download Fiscal Risk Statement FY2023-24
During the first half of the current Fiscal Year 2023-24, there was a noticeable decline in average international oil prices, which is expected to continue soon amidst concerns of a global recession.
The government federal has forecasted a reduction in the Current Account Deficit (CAD) to US$ 3.7 billion in FY2023 which appears feasible. However, this projection is subject to certain risks. A more significant than expected slowdown in global demand could have a negative impact on Pakistan’s export outlook and workers’ remittances.
Furthermore, global, and domestic uncertainty also pose a downside risk to this forecast. On the upside, a larger than anticipated slowdown in domestic demand or a relatively sharp fall in global commodity prices could improve the current account deficit and reduce fiscal risk.
The government aims to reduce the fiscal deficit by implementing measures such as expanding the tax net, rationalizing subsidies, and promoting economic growth. However, the challenge of rising debt servicing could hinder the reduction of the fiscal deficit.
