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Pakistan faces grim economic forecast amid loan pay back deadlines

IslamabadEdited By: Mukul SharmaUpdated: Dec 31, 2022, 06:44 PM IST
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Pakistan Prime Minister Shehbaz Sharif's government is desperate to reduce the energy bill Photograph:(AFP)

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Despite such a downcast economic description of the country at present, Pakistan’s Finance Minister Ishaq Dar on Friday said that “there is no way Pakistan is going to default," referring to a number of loans that the country has committed in past to pay back. 

As Pakistan's fiscal deficit widened by more than 115 per cent between July and October this year, the country's finance ministry forecast that inflation in the South Asian nation will remain between 21 to 23 per cent. "For FY23, economic growth is likely to remain below the budgeted target due to the devastation caused by the floods. This combination of low growth, high inflation and low levels of official foreign exchange reserves are the key challenges for policymakers," Pakistan's Ministry of Finance said on Friday in its Monthly Economic Update and Outlook report, reported the Dawn.

Pakistan’s MoF’s Economic Adviser’s Wing (EAW) prepared a report which stated that from July-October 2022, the government’s fiscal deficit stood at 1.5 per cent of the GDP (Rs 1.266 trillion) compared to 0.9 per cent of the GDP (Rs 587bn) in 2021. Amid such financial woes, the Pakistani government faces the challenge of providing relief to people in flood-hit areas.

"The EAW report said the average Consumer Price Index (CPI) in the first five months (July-November) of FY23 remained at 25.1 per cent compared to 9.3 per cent in the same period last year. It is expected that CPI inflation will remain in the range of 21-23 per cent,” said the Dawn report.

WATCH | WION Business News: Pakistan GDP growth to slip from 5% to 3% amid floods

"The current account posted a deficit of $3.1bn for July-November FY23 against a deficit of $7.2bn last year, mainly due to an improvement in the trade balance," it added.

The current account deficit shrank to $276 million in November from $569m in October.

Will Pakistan default on loan payments?

Despite such a downcast economic description of the country at present, Pakistan’s Finance Minister Ishaq Dar on Friday said that “there is no way Pakistan is going to default," referring to a number of loans that the country has committed in past to pay back to the multilateral financial institutions and countries. 

"We are in a tight position. We don’t have USD 24bn in foreign exchange reserves that our (last) government left in 2016. But that’s not my fault. It’s the system’s fault," Darr told investors at a ceremony to mark the listing of Pakistan’s first developmental real estate investment trust scheme on the stock exchange.

A recent Dawn report quoted the State Bank of Pakistan saying that the incumbent Pakistan government avoided focusing on growth for the fiscal year FY23, resulting in a drop in growth.

Despite sacrificing growth, Pakistan’s government has not been able to achieve price stability and financial stability, the bank said in its annual statement.

(With inputs from agencies)

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