Business

Budget 2022-23: The government has signalled a downturn in growth, predicting 5% GDP growth in FY23

Budget 2022-23: The government has signalled a downturn in growth, predicting 5% GDP growth in FY23

ISLAMABAD: The Annual Plan Coordination Committee (APCC) has approved the macroeconomic framework for the fiscal year 2022-23, which calls for a 5% real GDP growth rate and an average inflation rate of 11.5 percent.

The administration also stated that the inflation target was missed, since it was expected to be around 8% on the eve of the penultimate budget for 2021-22, but it had already risen to 13.3% in provisional projections.

The 5.97 percent GDP growth rate was also agreed during the APCC conference.

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The government expects inflation to be around 11.5 percent in the coming fiscal year, despite independent economists such as Dr Hafiz A Pasha predicting that the CPI could rise to 25 percent in the coming fiscal year due to rising administrative costs.

The government expects a current account deficit of 2.1 percent of GDP, or more than $10 billion, in the coming fiscal year.

The APCC approved macroeconomic framework, which states that with the likely resumption of the IMF programme, the economic outlook for the next fiscal year 2022-23 is expected to result in an orderly rebalancing between imperatives of economic growth and addressing external sector vulnerabilities, particularly in light of the magnitude of the global slowdown and the expected abatement of global inflation in commodity prices and the stability of exchange rate movements.

Economic growth will be slowed by fiscal adjustment efforts, addressing a worsening trade balance, and reducing political and economic uncertainty. In light of the foreign and domestic economic uncertainty, GDP growth is expected to slow somewhat to 5% in 2022-23, with agriculture (3.9%), manufacturing (7.1%), and the services sector accounting for the majority of the growth (5.1 percent ).

Because of the fiscal and current account constraints, investment will be slowed. As global inflationary pressures do not ease fast, inflation will remain in double digits.

Farm’s predicted growth rate of 3.9 percent is largely dependent on the resurrection of cotton and wheat output, as well as the steady availability of water, certified seeds, fertilisers, pesticides, and agriculture financing facilities. The revival of both of these crops would not only help to maintain growth momentum, but it will also help to relieve BoP constraints by lowering import requirements.

Increased production capacity during the last two years is likely to anchor the growth momentum, which will be reduced as a result of fiscal consolidation efforts.

During 2022-23, the broad-based rebound of LSM is expected to keep growth at 7.4%. High energy input costs and scarcity, exchange rate concerns, and supply shocks connected to the Russia-Ukraine conflict all pose downside risks to the industrial sector. During the years 2022-2023, the manufacturing industry is expected to develop at a rate of 7.1 percent.

The services sector will also see a slowdown in growth, with growth expected to slow to 5.1 percent in 2022-23, which is still lower than the 5.3 percent annual average growth seen in the five years before to Covid-19. Both the agricultural and industrial sectors are expected to do well, complementing the anticipated expansion in the services sector.

Furthermore, due to the stabilisation and uncertain economic climate, investment is predicted to drop slightly to 14.7 percent of GDP in 2022-23.

On a nominal level, fixed investment is predicted to expand by 13%; however, as a proportion of GDP, it will fall marginally from last year and will remain around 13% of GDP in 2022-23. For the coming fiscal year, the national savings rate is expected to be 12.5 percent of GDP.

RELATED: Pakistan’s outlook has been downgraded by Moody’s from stable to negative

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Sibtain Ali is a Senior Editor Business at Pakistan Lounge and joined in October 2021. Formerly business editor at a renowned International News website

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