Pakistan's economic outlook is uncertain, blurry

Islamabad [Pakistan], July 29 : The ongoing political unrest in Pakistan is increasing economic uncertainty, causing the rupee to depreciate, and impacting the cost of production.
Pakistan's economic outlook remained uncertain and blurry while inflation would stick around the current level of 21 per cent in the short term, said the Ministry of Finance on Thursday, amid the government's failure to stem rupee depreciation that was causing price hike, reported The Express Tribune.
In its monthly economic outlook for July, the economic advisory wing underlined that the inflationary and external sector risks were building macroeconomic imbalances in the economy.
"All these factors are making the economic outlook uncertain," stated the finance ministry. Halting investment decisions was further making the outlook blurry, it added.
"The higher interest rate followed by monetary contraction is also adversely affecting perception about the outlook of the economy."
The grim picture painted by the government is in line with the prevailing international conditions and also supports market sentiment amid the massive devaluation of the rupee against the greenback that is further complicating the economic scenario, reported The Express Tribune.
The dollar climbed to a new high of Rs 240 after the rupee fell by another Rs 3.92 a dollar in the inter-bank market on Thursday.
Since the Pakistan Muslim League-Nawaz (PML-N) rout in Punjab, the rupee has lost Rs 29, or 13.7 per cent, of its value. Under Prime Minister Shehbaz Sharif, the rupee has so far lost Rs 55, or 30 per cent of its value, reported The Express Tribune.
The finance ministry said that high international prices were still adversely affecting external positions even in the new fiscal year. It said that the government had taken all difficult decisions to make the reviews successful, reaching a staff-level agreement for a USD 1.17 billion loan tranche.
"However, ongoing political unrest is not only creating governance problems but on the other hand intensifying the uncertainties depicted by exchange rate depreciation which will, in turn, impact the cost of production," said the ministry.
The finance ministry said that the government was taking all possible measures to counter those pressures so that the economy could achieve the growth target of 5 per cent during the current fiscal year.
However, the central bank has given a 3 per cent to 4 per cent economic growth range, which should also be the target due to the prevailing structural imbalances, reported The Express Tribune.
The yearly inflation has remained in double digits since November 2021. This hike in inflation will continue in July 2022 and hover around the level observed in June 2022 due to an increase in international commodity prices, particularly energy prices, and depreciation of the rupee, said the ministry.
The recent acceleration in inflation was due to supply chain disruptions, high transportation charges, and surging global commodity prices, according to the ministry.
The current account deficit peaked at USD 17.4 billion during the just-ended fiscal year as against a deficit of USD 2.8 billion in the preceding year, reported The Express Tribune.
The current account deficit widened due to the constantly growing import volume of energy and non-energy commodities, along with a rising trend in the global prices of oil, COVID-19 vaccines, food and metals.
In June 2022, the surge in imports of goods owing to an increase in international commodity prices widened the trade deficit. Workers' remittances were not enough to finance the trade deficit, as a result, the current account deficit widened.