Fiscal deficit contained at 1.4%, primary balance improves

Islamabad: The fiscal deficit during the first five months (July-November) of the current fiscal year has been contained at the same level of 1.4 percent of GDP as it was recorded in the comparable period last year, finance ministry said in a report.

According to the monthly Economic Update and Outlook for January 2023, the primary balance improved during July-November (FY2023) and posted a surplus of Rs 511 billion (0.6 percent of GDP) against the deficit of Rs 36 billion (-0.1 percent of GDP) last year.

“The first five months of CFY have ended with some developments; containing fiscal deficit and surplus in primary balance due to effective fiscal management,” it says.

According to the report, the private sector credit observed developments in the month of December 2022 as it increased by Rs 458 billion compared Rs 413.6 billion in December 2021, emanated more credit demand both from working capital and fixed investment.

During 1st July to December 30, FY2023 money supply (M2) showed growth of 2.0 percent (Rs. 562.8 billion) compared to growth of 4.3 percent (Rs. 1047.3 billion) in last year.

The current account deficit shrank to $ 400 million in December 2022 as against $ 1857 million in the same period last year, largely reflecting an improvement in the trade balance.

Current Account posted a deficit of $ 3.7 billion for Jul-Dec FY2023 as against a deficit of $ 9.1 billion last year, mainly due to a contraction in imports.

The report termed fiscal consolidation as the key to saving official reserves and exchange rate stability of the country. It says, the fiscal consolidation may temporarily be costly in terms of growth prospects in the short term. However, long-run prosperity and growth could only be achieved by augmenting the country’s long-term equilibrium growth path by expanding production capacities and productivity.

The report says, Pakistan was currently confronted with the challenges like high inflation, low growth, and low levels of official foreign exchange reserves.