An economic situation far from satisfactory.

As per The State of Economy Report 2021-22 released by the State Bank of Pakistan, the country's economic growth is expected to moderate considerably in FY23. Having delivered a headline growth approaching 6% in FY22, the country is expected to even miss the revised growth target of 3% to 4% this time round.

In addition, the government has targeted to reduce the fiscal deficit to 4.9% of GDP in FY23 from 7.9% in FY22, an outcome that would be achieved through both revenue and expenditure measures. Widening of the tax base through the elimination of exemptions, increase in tax rates and reinstatement of fuel taxes are expected to boost tax receipts. The non-tax revenues are also expected to improve with the re-imposition of PDL.

It must be kept in mind there can be slippages in the expenditure with respect to rehabilitation efforts. The IMF is insisting on higher collection in order to keep the fiscal and primary deficits within permissible levels. Analysts expect the fiscal deficit to hover around 6.5% of GDP, despite higher tax collection.

This deviation could be due to higher debt servicing and potential slippages during 2HFY23 owing to election and flood relief-related spending.

Foreign Exchange Reserves

The current account deficit situation is expected to improve beyond the original estimates of 3% of GDP in FY23 due to various demand suppression measures implemented by the government.

Likewise, commodity prices have also softened which will reduce the pressure on CAD even further. However, the loss of agricultural produce, induced by the recent floods, is likely to step up the import of agricultural commodities, especially cotton.

Everyone must keep in mind that Pakistan's economy is in an extremely fragile state at present with foreign exchange reserves slipping close to US$6 billion, barely enough to provide import cover of 1.16 months.

The external debt is reported at US$127 billion, equivalent to 40% of GDP. Pakistan faces significant challenges in the debt rollover. To this end, during 5MFY23, the gross inflow (including US$1.2 billion from IMF) has been only US$4.9 billion, while the amortization...