Growth expected to slightly recover at 4pc

ISLAMABAD: The economy will grow 4 percent in next fiscal year from a slow-down in 2019 on proposed policy measures to address structural imbalances, but inflation is likely to pick up further due to risks of high global commodities prices, a weaker rupee and a planned tax increase, budget documents showed on Tuesday. Growth is estimated at 3.29 percent for the outgoing fiscal year.

Annual plan for 2019/20 showed that the growth target of four percent is based on contributions from agriculture (3.5 percent), industry (2.3 percent) and services sectors (4.8 percent). The growth targets are subject to favourable weather conditions, management of current account deficit, consistent economic policies and aligned monetary and fiscal policies, according to the annual plan.

The government supports contractionary monetary policy to restore macroeconomic stability and manage aggregate demand. “The challenge would be to strike a balance between growth and stability in such a way that monetary policy tools might not suffocate economic growth while containing inflationary pressure,” the document said.

Consumer price index (CPI) inflation was forecast at 8.5 percent for the next fiscal year because of rising commodity prices in international market and effect of exchange rate depreciation. Consumer price index inflation was recorded at 7.19 percent for the July-May period of 2018/19 fiscal year.

Consumer inflation is projected to enter into double digit in the next fiscal year if prices continue to surge. There are certain downside risks emanating from upward adjustment in utility prices, global oil price increase and domestic supply shocks.

The annual plan approved by the National Economic Council said the growth is expected to recover in 2019/20, while macroeconomic stabilisation is achieved through curtailing domestic demand.

Fiscal consolidation and regulatory measures are to ease the growing pressures on the external front. The contractionary monetary and fiscal measures have already decelerated economic growth since December 2017 and it will be the second fiscal year of stabilisation and adjustment. The year will also unfold the implementation of the International Monetary Fund’s program. Inflation is expected to remain on a higher trajectory, though the spikes would be contained through monetary contraction.