Economy Will Recover Despite Inflation: Finance Ministry

The Economic Advisor’s Wing of the Finance Division has reckoned that Pakistan’s economy is on the road to recovery, despite being hampered by inflation and external pressures as a result of currency depreciation, a high growth path, international commodity prices, and a variety of other factors.

The Finance Division’s Monthly Economic Update and Outlook (MEUO) for November noted that Pakistan is on a high development path, but at the same time faced with the daunting prospect of dealing with inflationary pressures to offset economic variabilities.

The magnitude and duration of inflation are the results of depreciation based on a prior balance of payments crises, which have been exacerbated by the acceleration of global inflation and the extraordinary rise in international commodity prices, the report noted.

These events have put a lot of strain on the external accounts, notably the commodities trade balance, and then the current account balance. For instance, international commodity prices, the exchange rate, seasonal influences, and investors’ predictions about possible changes of these indicators all influence Pakistan’s inflation rate. The acceleration of global inflation, as well as a large increase in freight rates, has increased the expense of international trade.

Regardless of these issues, the Finance Division expects this increase in inflation may be mitigated in the near future. Furthermore, government policies, both administrative and relief-centric, may help alleviate some of the pressure.

Essentially, a rise in international commodity prices could be the source of new impulses in November. The Finance Division stated that global crude oil prices, as well as all other energy inputs, are on the rise as a result of increased global demand in the post-COVID-19 situation. Furthermore, an increase in freight charges has made international trade more expensive, resulting in a rise in worldwide inflation.

While external pressures have begun to materialize, the Finance Division forecasts the government to ease out these pressures in the coming months. Its efforts to maintain fiscal discipline through an effective revenue mobilization strategy and better expenditure management will continue to aid in further reducing the budget deficit during the current fiscal year.