Pakistan’s economy achieved real GDP growth of around 6 percent, for a second consecutive year in FY22, reported 24NewsHD Tv Channel.
This was stated in the annual report of the State Bank of Pakistan on the state of Pakistan’s economy for the fiscal year 2021-22 released on Wednesday. According to the report, the growth was broad-based as both agriculture and industry saw a notable increase that spilled over to the services sector as well. However, with the continued reliance on consumption as the source of growth, amid sluggish improvement in productivity, the country remained vulnerable to adverse developments in the global economy.
Hence, a combination of adverse global and domestic developments led to the reemergence of macroeconomic imbalances during FY22.
The report noted that the expansionary fiscal stance in FY22, an upsurge in global commodity prices, and the fallout of the Russia-Ukraine conflict, led to a marked deterioration in the current account deficit (CAD).
In addition, the delay in the resumption of the IMF program and political instability exacerbated the country’s vulnerability through the depletion of FX reserves. The resulting depreciation in PKR amplified inflationary pressures by magnifying the effect of the global price increase. Fiscal policy support in the shape of tax incentives for industry, export, and construction, a large increase in provincial development spending, tax incentives, and subsidies to protect consumers from the impact of rising international oil prices, supported the momentum of economic activity.
On the financing side, net inflow of FX loans and liabilities rose considerably compared to last year, but remained lower than planned commitment amid the delay in resumption of IMF program and domestic political instability, leading to a decline in SBP liquid reserves during FY22.
The external account pressures, together with the appreciation in USD index especially in the second half of the fiscal year, led to a substantial depreciation in the PKR, which further magnified the combined effect of elevated domestic demand and the global commodity price increase, leading to a rise in inflationary pressures.
National Consumer Price Index (NCPI) inflation reached the double-digit level of 12.2 percent in FY22, exceeding the SBP’s revised projection of 9-11 percent. Food group, particularly the non-perishable category was a major source of inflation.
Furthermore, Fuel inflation also remained at an elevated level during the year. Inflation in the non-food-non-energy (NFNE) group also swelled during FY22, indicating both demand and cost push pressures.