It believes the headline inflation is likely to increase temporarily and remain on the higher side in FY23, but expects it to fall to 5% to 7% range in FY24, assuming moderating growth, normalizing global commodity prices and base-effect. NCPI currently is at a 2 year high driven primarily by perishable food items and core inflation. Nevertheless, central banks globally are responding to inflation.
Despite some respite in MoM current account deficit, the Rupee has remained under pressure due to the weak sentiment and a strengthening US dollar. Exports have continued their growth momentum along with robust remittances.
Moreover, growth in imports has been generally driven by crude oil, food items and chemicals including vaccines FY22 TD. Slight drop in volumes recently has been partially offset by higher oil and edible oil imports and higher international prices.
Pakistan is in a comfortable position to meet external financing requirements for FY23. Gross financing needs for Q4FY22 and FY23 stand at US$45 billion. Financing is available to the tune of US$51 billion – large part of which is multilateral loans. Pakistan expects a rollover of US$2.3 billion loan from China.
Discussions with the International Monetary Fund (IMF) are progressing well in Doha. However, delays might occur given that the budget for FY23 is also part of the ongoing discussions. The IMF requires ‘political assurances’ which may not preclude a caretaker setup from negotiating the program as well. The IMF has negotiated with caretaker setups in other countries in past.
The incumbent coalition government headed by Shehbaz Sharif is keen on continuing with the low-cost housing schemes. However, given the need for fiscal consolidation lending targets assigned to commercial banks for lending to private developers etc. might be reviewed.
The MPC also emphasized the need for strong and equitable fiscal consolidation to complement monetary policy measures.
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