The government expects an improvement in the trade balance in the coming months

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The federal government expects an improvement in the trade balance in the coming months, media reported Thursday. The Ministry of Finance says that although the economic recovery is underway, the challenges of the new wave of COVID-19, inflation and pressure from the external sector are still there.

The government is optimistic that the trade balance will improve and the current account deficit will trend lower when the January 2202 data is released. This growth momentum is expected to continue for the remainder of the current fiscal year (FY22) based on favorable developments in high frequency variables. The Ministry of Finance, in its monthly Economic Update and Outlook for January 2022, stated that rising global inflation, together with the significant increase in transport costs and the disruption of the supply chain resulting supply should make international trade costly. CPI (Consumer Price Index) inflation showed a slight decline in December 2021 and January 2022.

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Year-on-year (YoY) inflation in January 2022 may pick up slightly due to the base effect. However, month-on-month (MoM) inflation may decline. The government’s political, administrative and relief measures will continue to counter inflationary pressures over the coming months.

The report states that recently, Pakistan Bureau of Statistics (PBS) conducted a rebasing exercise in which it was found that growth in FY21 increased to 5.57% and this growth momentum is will also continue in FY22.

The report indicates that the Monthly Economic Indicator (MEI) remained strong in November. The momentum of economic dynamism observed in recent months should have continued to support economic activity in December 2021. Thus, the MEI should remain solid thanks to the good performance of high-frequency indicators.

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During July-December FY22, the current account deficit was recorded at $9.1 billion (5.7% of GDP). Exports and imports of goods and services increased in December 2021. Both were supported by strong positive seasonal effects. However, these effects are stronger on imports. Usually, during the months of January, these effects disappear, which can soften export earnings. The trade deficit is therefore expected to settle at lower levels in the January data.

Along with the expected improvement in the trade balance, the current account deficit may also start to decline.

The report further stresses that the government’s fiscal consolidation measures will continue for effective revenue mobilization and will follow a prudent expenditure management strategy to reduce the fiscal deficit while focusing on priority sectors important to keep the economy intact. growth dynamics.

The economy continues to show healthy value added creation. Its cyclical position is broadly balanced and the trend rate of potential output growth remains strong. The report states that in the real sector, for the 2021-22 Rabi season, the wheat crop was sown on an area of ​​22.8 million acres (97.7 of the target). The better overall use of inputs is expected to increase crop production in the 2021-22 Rabi season. In the first half of the current financial year, agricultural credit disbursements increased by 3.9% to reach 641 billion rupees from 617 billion rupees in the same period last year. Large-scale manufacturing (LSM) recorded growth of 3.3% in fiscal year 2022 from July to November.

In the fiscal, monetary and external sector, the budget deficit in July-November 2022 was recorded at 1.5% of gross domestic product (951 billion rupees). The primary balance shows a deficit of Rs36 billion (0.1% of GDP).

From July 1 to December 31, money supply in fiscal year 22 (M2) grew by 4.5% (1,104.1 trillion rupees) compared to growth of 5.6% (1,162. 8 billion rupees) last year.

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