The government on Monday cautioned that escalation of geopolitical tensions and domestic political conditions could hamper the positive outlook for Pakistan’s economy and may also aggravate the macroeconomic imbalances.
The recent geopolitical tensions, in particular the Ukraine crisis, is the most important external risk factor. Likewise, political conditions at home are building domestic risks, warned the Economic Adviser’s Wing (EAW) of the Ministry of Finance in its Monthly Economic Update & Outlook.
In its March update, the EAW noted that a further escalation of these risks could hamper the positive outlook for Pakistan’s economy and may also aggravate macroeconomic imbalances.
Currently, the global economy is facing three challenges including financial sanctions, commodity prices and supply-chain disruptions due to the ongoing war between Russia and Ukraine. These challenges have fueled global inflation and downgraded the growth outlook in most countries.
Both energy and non-energy prices increased in February 2022 by 7.7 per cent and 4.2 percent, respectively. Among key sub-groups, only fertilisers witnessed a decline of 1.9 percent, agriculture commodities rose 4.5 percent, metals and minerals 4.7 percent, and precious metals 2.2 percent.
According to the report, Pakistan’s economic performance continues to be strong and is still on a trajectory compatible with an economic growth target of around 5 percent in the current fiscal year.
Its cyclical position has returned to a more neutral stance. If this trend continues in the next months, economic growth will be driven primarily by the expansion of manufacturing capacity. However, the intensity of internal and external risks has still not been exactly realised which may adversely affect domestic economic activities.
Further, inflation and the current account deficit (CAD) are still under pressure. The government is taking measures to limit as much as possible further increases in the cost of living in the coming months. Moreover, the government measures designed to stimulate exports and discourage unnecessary imports are expected to contribute to constrain CAD.