ISLAMABAD: According to The News, the Ministry of Finance identified eight key financial risk factors that it believes could worsen Pakistan’s economy in a study released on Thursday.
The primary drivers are recognized as macroeconomic imbalances, mounting debt, guarantees, climate damage, losses at state-owned companies (SOEs), risks from public-private partnerships, fiscal indiscipline by provincial governments, and governance issues.
In its Fiscal Risk Statement (FRS) for 2023-24, the Ministry of Finance stated that Pakistan’s inflation rate has been variable in recent years due to a variety of factors such as currency devaluation, energy, and food prices in the global market.
The Pakistani rupee has depreciated significantly in recent years, impacted by many risk factors such as trade imbalances, external debt, political instability, and global.
The State Bank of Pakistan (SBP) is actively responding to rising inflation by hiking its policy rate. Furthermore, the government is concentrating on effective policy, administrative, and relief measures to reduce inflation and stabilize the economy, according to the FRS.
The inflation prognosis has deteriorated, increasing the risk to external stability. The greatest upside risk to the inflation outlook is uncertainty about the route of future energy price adjustments. However, a probable moderation in international commodity prices may help to reduce inflation. Furthermore, exchange rate adjustments, the impact of rising energy prices, and higher interest rates would allow prices to fall in the medium run. It would thereafter follow the expansionary monetary policy.
The administration intends to minimize the fiscal deficit through measures such as extending the tax base, rationalising subsidies, and fostering economic growth. However, increased debt payment costs may impede fiscal deficit reduction efforts. Three scenarios (representing macroeconomic hazards) are simulated to assess fiscal risks. Scenario 1 projects/simulates the reactions of revenues, expenditures, and fiscal deficit in a situation in which the government has access to low-cost financing options (a reduction of 2 percentage points in external debt interest rate and 4 percentage points in domestic currency interest rate).
It is predicted that net federal revenues will stay at 6.7% of GDP; federal expenditures will eventually reach 9.7% of GDP; and the federal fiscal deficit will reach 3.0%.
