Economy on higher growth path, requires expansion of domestic production for sustainability: Economic Outlook

ISLAMABAD, Sep 28 (APP):Pakistan’s economy is currently on a higher growth path and requires to be driven by the expansion of domestic production for long-term enhancement and sustainability, says Monthly Economic Update and Outlook released here Tuesday.

“For long term enhancement and sustainability of economic growth, it is important that it is driven by the expansion of domestic production,” the monthly report released by the finance ministry says.
The value-added creation generates income that could be spent on consumption and investment, it adds.

“Attaining sustainable higher growth path requires a much larger proportion of the value added to be directed towards gross fixed capital formation, instead of consumption,” it adds, suggesting that this could be managed by appropriate long term structural policies, which were being implemented by the government.

In the short term, sustainability of the current growth required the trade deficit to remain manageable.
In this regard, the report adds, import dynamics were being closely monitored while exports could benefit from the current domestic and foreign economic dynamism.

It mentioned that inflation in some of Pakistan’s main export markets was rising significantly, however, added the domestic inflation was expected to decline.

Maintaining REER (real effective currency rate) at current level, the need for depreciation of the Rupee exchange rate was reduced significantly while the government policies for export promotion would also anchor for providing external sector stability.

Elaborating details about various economic indicators, the report says, the Large Scale Manufacturing (LSM) index for July was found close to expectations and for August, it is expected that LSM would roughly stabilize around the level observed in July, but will still show healthy Year-on-Year (YoY) growth.

The exports of goods and services in August 2021 were not far behind the expected $3 billion mark.
For next month, the ongoing strong recovery in Pakistan’s main export markets, the momentum in domestic economic dynamism and specific government policies to stimulate exports were expected to get exports of goods and services above the $3 billion level and more in the subsequent months.

These expected developments would reduce the balance on trade in goods and services around $ 3 billion in September 2021, as well as in the coming months. If remittances were to stabilize approximately $ 2.5 billion and taking into account the other secondary and primary income flows, the current account would remain in deficit but in manageable range.
On revenue side, Federal Board of Revenue (FBR) tax collection grew by 47.4 percent to Rs 442.3 billion in the month of August, FY2022 against Rs 300.0 billion in the comparable period of FY2021.

Tax collection has surpassed the target by Rs 94 billion set for the month of August.
FBR tax collection continues to be strong, showing that domestic economic activity was on the upswing. In addition, efforts to boost tax collection are yielding results. It is expected that FBR tax collection would achieve its target.

On Agriculture side, there was 20 percent increase in cotton production, likewise news about sugarcane production was also encouraging. Agriculture credit disbursement has shown a growth of 7.5 percent during July-August FY2022. Further, other input availability is also satisfactory, thus it is expected in absence of any adverse climate shock, agriculture sector growth will remain as per target of 3.5 percent.

On inflation, it says, the YoY inflation in September was likely to resume its declining trend observed in recent months. Based on current information, the September inflation rate is expected to end up between 7.5 percent to 8.4 percent.