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Pakistan Economy_FY23 Economic Survey_Exogenous factors pose a challenge,(AKD Daily, Jun 09, 2023)

AKD Daily

 

Pakistan Economy_FY23 Economic Survey: Exogenous factors pose a challenge

 

• FY23 GDP growth has been estimated at 0.29% for FY23, compared to 6.1% recorded in FY22 and the target of 5% GDP growth for the year. The slowdown in the economy has been attributed to: i) the FX crisis in the country, and ii) the Aug’22 floods that had widespread impact on the country’s agricultural output, with losses estimated at US$30bn.
• Sector-wise, Agriculture/Manufacturing/Services sectors witnessed a change of +1.55%/-2.94%/+0.86% in FY23. The floods had led to losses of two staple crops for the country, i.e. cotton and rice, which was offset by the increase in wheat/maize/sugarcane to the tune of 5.4%/6.9%/2.8%, respectively, during the year. Furthermore, LSM saw a contraction of 8.11% in 9MFY23, driven by supply disruptions in the local market.
• Driven by higher commodity prices, rolling back of subsidies, and the weakness in the local currency, FY23 has been marred by high inflation readings. To note, in 11MFY23 period, CPI headline inflation has averaged ~29.2%, reaching as high as 38.0%YoY in the month of May’23.
• Despite the growth in the country’s tax collection, up 16.5%YoY in 9MFY23, challenges remained in the form of higher domestic debt servicing costs, due to elevated interest rates in the country and elsewhere in the world. To note, markup payments grew by 69.1% in 9MFY23, pushing current expenditures up by 25.3%YoY.
• Current expenditures are likely to reach ~PkR14.6tn in FY24, whereas tax collection has been targeted at PkR9.2tn, while non-tax revenues are estimated to bring another ~PkR2.6bn in FY24.
• Going forward, the measures in today’s budgets are likely to determine the trajectory of the market in the short-term. Resumption of the IMF program would be  crucial for the country, but remain a stop gap solution until the country implements some difficult decisions. With this backdrop, we continue to advocate for the E&P and Technology sectors, due to the US$-based revenue  sources, with minimal foreign currency cost components.

 

AKD Research