Macro-budget, the toughest task at hand

ISLAMABAD: Economic planners are having difficulty preparing the budget for fiscal year 2022-23 given the expected slowdown in GDP growth and mounting inflationary pressures.

The general public would likely continue to face double-digit consumer price index (CPI) inflation in the range of 11-12 percent in the next fiscal, along with an increased risk of food shortages.

CPI-based inflation stood at 13.4 percent in April 2022. Forecasts put it in the range of 11.8 to 12.5 percent on average for the outgoing fiscal year ending on June 30, 2022.

For meeting domestic consumption requirements and maintaining strategic reserves, Pakistan would have to import four to five million tonnes wheat in the next fiscal year 2022-23. Lingering Russia-Ukraine war might impact wheat exports by 40 percent, with India that has 20 percent share in the global wheat market already having slapped a ban on exports. This would choke the wheat market by up to 60 percent.

Current price of wheat in the international market stands at $570/tonne. After inclusion of operation, handling and logistics cost of imports, the cost would stand at Rs150/kg in the domestic markets.

Pakistan used to import palm oil from Indonesia. But the country has banned the export of palm oil and now Islamabad has to explore other markets. Keeping the rising price of palm oil in the international market, price of cooking oil/ghee in the domestic market would shoot up too.

As a staple, one could have relied on rice, as its production remains good. But the commodity was meant for exports, leaving the domestic market reeling from the surge in prices.

While rising inflation is currently a global phenomenon, and has touched nine percent in UK, 8.3 percent in US, the risk of food shortages in the South Asia region including Pakistan looms large.

Without creating buffers in foreign exchange reserves and food stocks the country of over 220 million might plunge into a serious crisis-like situation.

Top official sources at the Ministry of Finance and Ministry of Planning told The News in background discussions that real GDP growth was projected to nosedive to stand in the range of 4-4.5 percent for the next fiscal budget compared to 5.97 percent provisional estimates for the outgoing fiscal year.

This projection clearly indicates that the boom and bust cycle would persist and Pakistan would again suppress demand by tightening fiscal and monetary policies to achieve stabilisation under the prescription of the International Monetary Fund (IMF) and other lenders.

Sharp and deep adjustments on fiscal front suggested by the IMF might trigger “stagflation”, lowering GDP growth and raising inflation at an accelerated pace.

On fiscal front, the country’s budget deficit might hover around Rs4.5-5 trillion equivalent to around eight percent of GDP for the outgoing fiscal year.

Budget makers at least on papers wanted to curtail the budget deficit in the range of slightly over 6 percent of GDP so the government would have to make adjustments of two percent of GDP, equivalent to Rs1,500 billion for the next fiscal year.

They have to come up with innovative ideas to fetch additional taxation revenues and restrict increasing expenditures in order to narrow the yawning budget deficit.

On external front, it has been projected that the current account deficit would remain on higher side mainly because it would be hard to slash down imports in any substantial manner. Imports of goods would be touching $71-72 billion for the current fiscal year as they stood at close to $60 billion in first ten months of the current fiscal year.

The imports have been projected to remain in the range of $65-67 billion in the next fiscal year 2022-23, with little room to suppress the demand for imports.

The government would have shift focus towards higher exports and remittances to increase reliance on non-debt creating dollar inflows during the next fiscal year.