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The NEC must approve the proposed macro-economic framework, the PSDP and the economic performance

The National Economic Council will approve the economic performance of the current fiscal year and the proposed macro-economic framework with the Public Sector Development Program (PSDP) worth Rs 800 billion to achieve an ambitious growth target of 5 % for the next fiscal year.

Sources said the planning commission has prepared a proposal to submit to the NEC which is due to be held here on Tuesday. The NEC meeting would be chaired by the Prime Minister and attended by the chief ministers of the provinces, including the AJK and the GB.

According to the details, the NEC would be informed that the 2021-22 financial year has started with a positive outlook, as growth-supportive policies have induced pressures on aggregate demand, hence the resurgence of the tenuous fallout between the acceleration of growth and external sector vulnerabilities. Structural features of the balance of payments have constrained growth as well as a global commodity price boom that has manifested itself in the strongest surge in imports on record. These developments have led to fiscal and monetary responses aimed at rebalancing aggregate demand growth with external sector sustainability. While the combination of macroeconomic indicators reflects a surge in economic activity, balancing the external sector in a global environment of rising inflation remains a major challenge for the economy.

The rally in international commodity prices last year has turned into a commodity super cycle that is expected to prevail for an extended period. In addition, the Russian-Ukrainian conflict has global implications for commodity markets, trade and financial intermediaries. This conflict retards economic growth and increases inflationary pressures. High inflation has already complicated central bank trade-offs between controlling price pressures and safeguarding growth. Interest rates are expected to rise as central banks tighten policy, putting pressure on emerging markets and developing economies. Moreover, developing countries like Pakistan have limited fiscal space to cushion the impact of war on their economies.

The meeting would further be informed that in its latest economic outlook of April 2022, the IMF projected that global growth would slow from 6.1% in 2021 to 3.6% in 2022 and 2023. This is a downward revision to its earlier projection of January 2022 by 0.8 percentage points for 2022 and 0.2 percentage points for 2023. Emerging markets and developing economies are likely to face more intense fallout than advanced economies due to their limited capacity for political support. The IMF expects inflation to remain high for longer than expected, driven by war-induced commodity price hikes and widening price pressures. The IMF adjusted its inflation projections to 5.7% in advanced economies and 8.7% in emerging and developing economies, 1.8 and 2.8 percentage points higher than expected in January. Thus, rising inflation in Pakistan will persist for some time.

According to details on economic performance during 2021-22, the economy is expected to consolidate on the growth momentum generated in fiscal 2021, hence an expected GDP of 4.8% in fiscal 2022 with respective contributions from agriculture (3.5%) and industry (6.5%) and services (4.7%). This growth target was based on the assumption that a positive response to fiscal and monetary stimulus packages will continue to provide momentum to growth momentum, including favorable weather conditions, a vaccination campaign to reach maximum population and the easing of restrictions linked to COVID-19 before the end of the first half, management of the current account deficit, coherent economic policies, etc.

Growth-supportive policies induced aggregate demand and demand pressures remained strong, as evidenced by the sale of durable goods, rising imports of consumer goods and rising credit to the private sector. Credit to the private sector reached its highest level ever. Google Mobility Index shows a 59% increase in mobility across Pakistan compared to baseline (pre-Covid). In this context, the economy exceeded the envisaged target of 4.8% (the target is on an old basis, so might not be really comparable) by a wide margin and recorded strong growth of 5.97 %. This growth was contributed by the agriculture sector (4.4%), industry (7.2%) and the services sector (6.2%) and the three sectors also exceeded their respective sector targets. . However, there remained a question mark over the quality of economic growth as it is mainly driven by excessive demand-driven consumption.

Aggregate demand pressures remained strong, as evidenced by the sale of durable goods, rising imports of consumer goods and rising credit to the private sector. Credit to the private sector reached its highest level ever. This increase in demand is mainly explained by the good financing conditions offered by the banks and the increase in income during the period.