Finance ministry attributes growing December import bill to oil rise

ISLAMABAD: Ministry of finance has conceded that the increase in international oil prices and import of additional food products enhanced import bill by $1.2 billion as it stood $5 billion in December 2020 compared to $3.8 billion in the same month of last year.

According to economic outlook released by ministry of finance on Tuesday, current outlook ensures economic revival on the basis of continued recovery seen in recent months but there is possibility of slower economic activities especially in services sector depending on the intensity and duration of pandemic.

Regarding inflation, it stated that recent developments show that both year-on-year and month-on-month inflations are on downward trend. In recent months, oil prices have been very volatile, and international food prices have been rising.

However, exchange rate movements remained almost neutral. The impact of rising international food prices was mitigated by government policies focusing on improving the supply stream of food products and improving the functioning of domestic food markets. It is expected that the declining trend in year-on-year inflation would continue in January within a range of 7.2 to 8.2 percent.

The prospects for growth in agriculture are encouraging on the basis of major kharif crops. Rice, sugarcane and maize have surpassed the production targets of 2020/21. There is downside risk to cotton production due to heavy rains, locust attack and decline in area under cultivation, which is expected to be mitigated by other kharif crops.

Further, for rabi season 2020-21, wheat crop production is expected to achieve production target of 27 million tons. On the basis of input availability, better weather forecast and achievement of more than 90 percent sowing target area of wheat in Punjab, wheat is expected to meet its target.

Industrial activity, measured by the large scale manufacturing (LSM) index is the sector which is most exposed to external conditions. In recent months, LSM continues to recover from the COVID-19 crises that caused industrial output to fall significantly in March and April last fiscal year.

The monthly economic indicators show continued strong growth in December, in continuation with what was observed in the previous five months. It follows that economic growth has rebounded in the first half of the current fiscal year.

However, there was no pressure on foreign reserves as current account remained in surplus for H1 FY2021. Looking forward, depending on these explanatory factors, imports may remain $4.5 – $5 billion in next month. Exports are expected to stabilise around current levels. But in the baseline scenario, the trade balance is not expected to further deteriorate. Remittance inflows remain strong and continue to provide strong support to the financing of the trade deficit.

Fiscal performance remained satisfactory. Currently, the fiscal policy actions are primarily concentrated on relief measures to support businesses stay afloat and to protect vulnerable segments of society. At the same time, the government is focused on containing the fiscal deficit at a manageable level and keeping the primary balance at a sustainable level.

According to latest fiscal numbers, healthy growth in non-tax revenues, satisfactory performance of Federal Board of Revenue tax collection despite issuance of higher number of refunds and controlling of expenditures other than mark-up payments and COVID related would pave the way to maintain the fiscal deficit within the reasonable limits in coming months.

Pakistan’s economy consecutively suffered from balance of payment crisis and COVID-19 pandemic kept economy below its potential level. Since the start of current fiscal year, economy has started recovering. Government is committed to monitor external balance and its financing closely. Furthermore, the Government has also taken policy and administrative measures to monitor the supply and market functioning wherever necessary to mitigate inflationary pressure.

The restoration and acceleration of Pakistan’s productive capacity is a necessity to ensure a high and sustainable growth in the near and longer term.

In the near future, the economic recovery is expected to translate into more productive investment expenditures.

The Government is committed to motivate investments in crucial sectors of the economy to enhance productive capacities and to stimulate economic growth.