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Sunday June 16, 2024

Budget 2023-24: Govt plans to limit current account deficit to 1.7pc of GDP

Envisaging real GDP growth rate of 3.5 percent and inflation at 21 percent, the Annual Plan Coordination Committee granted its approval of current account deficit (CAD) at $6.2 billion or 1.7 percent of GDP for the next budget 2023-24

By Mehtab Haider
June 03, 2023
Budget 2023-24: Govt plans to limit current account deficit to 1.7pc of GDP. AFP/File
Budget 2023-24: Govt plans to limit current account deficit to 1.7pc of GDP. AFP/File

ISLAMABAD: Envisaging real GDP growth rate of 3.5 percent and inflation at 21 percent, the Annual Plan Coordination Committee (APCC) Friday granted its approval of current account deficit (CAD) at $6.2 billion or 1.7 percent of GDP for the next budget 2023-24. 

The CAD was restricted at 1.1 percent of GDP for the outgoing financial year ending on June 30, 2023. It shows the import restriction policy was projected to continue to a larger extent under the policy prescription adopted by the government for the upcoming budget.

It is not yet known how the government is going to satisfy the IMF on macroeconomic projections for the next financial year. According to macroeconomic framework approved by APCC, the external sector is expected to improve upon falling global commodity prices besides lesser dependence on wheat and edible oil import due to higher domestic production. The market-based exchange rate, favourable pro-export policies and easing of administrative import controls are expected to improve performance of export industries in 2023-24. Moreover, workers’ remittances will ameliorate through formal channels once the gap between inter-bank and open market exchange rates is settled. Similarly, capital flows pertaining to flood-related Geneva pledges are expected to further improve the Balance of Payments position.

The economic outlook for the next year is positive with a growth target of 3.5pc against 0.29pc for the ongoing financial year. “The revival of growth hinges upon political stability, external account and macroeconomic stability amid expected fall in global oil and commodity prices”, it said.

With falling global inflation, domestic inflation is expected to reduce gradually next year, but will remain in double digits. Agriculture is expected to grow at 3.5pc in 2023-24 which will be contingent upon favourable weather conditions, ample water availability, certified seeds, fertilizers, pesticides and agriculture credit facilities at affordable costs.

Moreover, increased productivity of livestock subsector is imperative for the revival of agriculture sector. The revival of cotton and sufficient production of wheat will not only support growth momentum but will also ease out Balance of Payments pressures through lesser import requirements.

Industrial sector is expected to recover in 2023-24 as demand and supply shocks are likely to dissipate. It is expected the sector will grow by 3.4pc with LSM at 3.2pc. Industrial sector is expected to get boost from improved inputs and energy supplies on the back of anticipated fall in global oil and commodity prices, public sector expenditure and mega projects for infrastructure development.

However, there are downside risks of high interest rates and exchange rate uncertainties which may raise the costs of working capital and raw material. Similarly, construction in housing sector and infrastructure projects may be affected by higher prices of construction material. Services sector is also expected to grow at 3.6pc. The envisaged growth in commodity producing sectors will complement the targeted growth in services sector.

Uptick in economic activity in agriculture and manufacturing sectors will translate into increased growth in wholesale & retail trade and transport, storage & communications. Moreover, tourism industry is expected to gain momentum and generate socioeconomic dividends that will have trickledown effect on retail trade, hotels and restaurants.

Investment-to-GDP ratio is expected to increase from 13.6pc in 2022-23 to 15.1pc in 2023- 24 due to stabilisation and political stability. Fixed Investment is expected to grow by 40.5pc on nominal basis, whereas, as percentage of GDP, it is expected to increase from 11.9pc in 2022-23 to 13.4pc in 2023-24. National Savings rate is targeted at 13.4pc of GDP.

Fiscal deficit is expected to narrow on the back of fiscal consolidation measures with a focus on curtailing subsidies and energy sector’s circular debt. Monetary policy stance will remain aligned with the objectives of growth revival and inflationary expectations. With falling global inflation, domestic average inflation is expected to gradually reduce to 21 percent next year.