According to a recent study from the Ministry of Finance, inflation may reach 9% as a result of monetary expansion and a surge in international commodity prices, and the current account deficit may continue above $500 million in August.
The monthly economic outlook report for the month of August also anticipated about $5.5 billion in imports in August, which has been a significant factor for the current account deficit expanding once more.
According to a study issued by the finance ministry’s economic advisory branch, year-on-year inflation is anticipated to range between 7.6 percent and 9.2 percent in August.
It went on to say that Pakistan’s inflation rate is primarily influenced by current and previous fiscal and monetary policies, international commodity prices, the US dollar exchange rate, seasonal variables, and economic agents’ predictions about how these indicators would evolve in the future.
In July 2021, the rate of inflation was 8.4 percent.
One of the main difficulties identified in the recently released three-year economic growth strategy is a “acceptable level of inflation.”
According to Dr. Ashfaque Hasan Khan, former adviser Ministry of Finance, an inflation rate of approximately 7% is reasonable for a nation like Pakistan.
According to the finance ministry data, the money supply increased by Rs3.4 trillion during the previous fiscal year, representing a 16.2 percent increase over the previous year. It went on to say that a rise in international commodity prices can put pressure on both domestic inflation and the balance of payments.
According to the government, the trade imbalance in goods and services is anticipated to stabilise at around $3 billion in August. The current account deficit is projected to remain manageable, based on a monthly average of $2.5 billion in remittances and other secondary and primary revenue flows.
According to the Ministry of Finance, imports of goods and services would be around $6 billion this month, which suggests $5.5 billion in commodity imports. As a result, the current account deficit would stand at modest monthly levels of approximately $500 million this month, according to the ministry.
In July, the current account deficit was $773 million (or 2.8 percent of GDP), compared to a surplus of $583 million the previous year.
The central bank predicts a current account deficit of up to $9.5 billion in this fiscal year, compared to the Ministry of Finance’s forecast of $13 billion.
According to the finance ministry, the current account deficit worsened due to increased imports of energy and non-energy goods, as well as a rising trend in global prices for oil, Covid-19 vaccines, food, and metals.
On the one hand, global economic recovery, particularly in Pakistan’s key trade partners, is a positive indication for export growth and worker remittances. However, rising international commodity prices pose a negative risk in terms of high import values and increasing inflationary pressures in Pakistan, according to the report.