INTRODUCTION :

Pakistan, officially the Islamic Republic of Pakistan is a country in South-Asia. It is the world's fifth-most populous country with a population of around 242 million and has the second largest Muslim population in the world. The country gained independence in 1947 after the partition of the British Indian Empire, which rewarded separate statehood to Muslim-majority regions.

BACKGROUND :

Over the past four decades, Pakistan has been led by governments whose descriptions, although complex, commonly alternated between civilian and military, democratic and authoritarian, relatively secular and Islamist. It is a regional and middle-power nation, having world's sixth-largest standing armed forces with its nuclear weapons declared.

The political history of Pakistan has been characterized by periods of significant economic and military growth as well as those of political and economic instability. Since the start of its journey, the country has been continuously facing numerous challenges such as poverty, corruption, illiteracy and terrorism. Though the state has been doing its best to overcome these challenges, but still the impact they have created on its economy is absolutely unsustainable.

OVERVIEW OF THE ECONOMY :

The economy of Pakistan is ranked amongst the emerging and growth-leading economies, with a large and rapidly increasing middle-class. It is the 24th largest economy worldwide in terms of the purchasing power parity (PPP) and 42nd-largest in terms of nominal Gross Domestic Product (GDP). The nominal GDP of the country stands at US$347 billion with a nominal GDP per capita of US$1,562 (160th worldwide).

Since imposing a widespread lockdown in response to the first COVID-19 wave, Pakistan has used localized lockdowns to curb the infection spread, allowing economic activity to largely continue. Expansion of the national cash transfer program, accommodative macro-economic policies, and supportive measures for the financial sector, all helped mitigate the adverse effects of the pandemic. As a result, growth of real GDP at constant factor 2015-2016 prices rebounded to 5.6% in FY21, after contracting by 1% in FY20.

With the economic recovery and improved labor market conditions, poverty measured at the lower middle income class poverty line of $3.20 PPP 2011 per day is estimated to have declined from 37% in FY20 to 34% in FY21. Rising food and energy inflation is expected to diminish the real purchasing power of household, disproportionately affecting poor and vulnerable households that spend a larger share of their budget on these items. In response, the government introduced a targeted food subsidy program (Ehsas Rashan Riyat) in February 2021.

HALF-1 OF FISCAL YEAR 2022 :

During July-December 2021 (H1 FY22), indicators have mostly signaled positive economic momentum. With continued improvement in community mobility and still robust official remittance inflows, private consumption is estimated to have strengthened. Similarly, investment has also increased with strong growth of machinery imports and government development expenditure. Government consumption also grew strongly with vaccine procurement. On the production side, agricultural output, mainly rice and sugarcane increased, reflecting better weather conditions. Similarly, large scale manufacturing growth rose to 7.5% y-o-y in H1 FY22, higher than the 1.5% for H1 FY21.

In contrast, business and consumer confidence have fallen since June 2021, partly due to concerns about higher inflation and interest rates. Headline inflation rose to an average of 9.8% y-o-y in H1 FY22 from 8.6% in H1 FY21, driven by surging global commodity prices and a weaker exchange rate. Similarly, core inflation has been increasing since September 2021. Accordingly, the state bank of Pakistan has been unwinding its expansionary monetary stance since September 2021, raising the policy rate by a commulative 275 basis points (BPS) and bank's cash reserve requirement by 100 BPS.

The current account deficit in H1 FY22 Widened to US$9.0 billion, from a surplus of US$1.2 billion in H1 FY21, as imports values surged by 54.4%, doubling the 27.3% growth in exports values. Double digit growth in remittances in H1 FY22 help to finance the record-high trade deficit. The financial account recorded net inflows of US$10.1 billion, supported by the new IMF SDR allocation, short-term government deposits by Saudi Arabia, and eurobond issuance in July 2021.

HALF-2 OF FISCAL YEAR 2022 :

In January-February, the Government obtained US$2.1 billion from International Sukuks and the IMF extended fund facility. Despite these inflows, foreign exchange reserves had fallen to US$13.5 billion by March 25, 2022, equivalent to 2 months of imports of goods and services. Meanwhile the rupee depreciated by 14.3% against the US dollar from July 2021 to end-March 2022.

On the back of high base effect, recent macroeconomic adjustment measures and stronger inflation, real GDP growth is expected to slow to 4.3% in FY22 and to 4% in FY23. However thereafter, economic growth is projected to recover to 4.2% in FY24.

Inflation is estimated to rise to 10.7% in FY22 but moderate over the forecast horizontal. Largely reflecting the imports surge in H1 FY22, the Current Account Deficit (CAD) is expected to widen to 4.4% of GDP in the second half of FY22. The fiscal deficit is projected to widen slightly to 6.2% of GDP of the FY22.

LAST QUARTER OF FY22 :

Well, since the regime change has taken place, the new government of Pakistan is facing the daunting task of managing a shuttering economy with huge deficits. According to Trading Economics global macro models and analysts expectations, the foreign exchange reserves are expected to be US$23,175.00 million by the end of this quarter. The State Bank of Pakistan has also hiked its key policy interest rate by 150 BPS to 13.75% as at May 23rd, 2022, to preserve price and foreign exchange stability amid a sharp devaluation of the currency.

During the past couple of weeks, a surge of around 40% is observed in the prices of petroleum products. Moreover, various renowned business entities such as Swvl, Careem, Kia, Proton and Toyota have exited the market because of uncertain economic conditions. Similarly, the stock market has been crashing continuously since the new government has taken control. But, despite all these economic crisis, the Federal Government has approved 6% hike in defence budget which amounts to Rs.1.45 trillion.

Meanwhile, the famous credit rating agency Moody's has changed the outlook of the country's economy to negative. Many economists are off the view that if the neighboring countries and IMF didn't come to rescue, the economy would fail to resist, and the country might default as well due to low consumer and government spending.

In short, all the economic indicators are following a negative pattern persistently, threatening the economy to be left in paralyzed state. And with this back-pedaled economy, I think it will be a great challenge for the Federal Government to prepare a budget, which would be nominal for every class of consumer.

Dated : Monday, June 06 2022.

P.S : All the facts and figures are verified from google