Hi Everyone! Hope you are all doing well. Welcome back to another blog. In this article, we will talk on the topic “Government Bets on Inflation and Debt Levels”. As we all know that our country has a lot of debt taken from different organizations. And in the coming years along, we have seen an increase in the rate of our debt, that’s not a piece of good news for us. As the rate of debt highs, along with inflation rates also rises that are already at their peak. To know more about the economical future of Pakistan read this article carefully.
Government Bets on Inflation and Debt Levels
The Ministry of Finance’s Economic Advisor’s Wing warns of high risks to Pakistan’s public debt in the coming years. Inflation is expected to rise before cooling down by FY26. Negative exchange rate shocks could increase the public debt ratio above the 70% threshold of GDP until FY25-FY26.
Gross financing needs remain high and pose liquidity risks, particularly due to high-interest rates and external pressures. The total public and publicly guaranteed debt increased by 7% to Rs. 55.8 trillion by the end of December 2022. Over 37% of total debt is external, making it vulnerable to rupee depreciation. The government is committed to financing the federal fiscal deficit through diversified sources of borrowing baskets.
Also, check: Impact of CPEC on Pakistan’s Power Sector
Expectation
The projected real GDP growth for FY23 is 0.8 percent due to various factors including catastrophic floods, fiscal consolidation, and a non-conducive global economic environment. The monetary stance is tight to control inflation, and over the medium term, growth rate recovery is expected. By FY2026, the growth rate is expected to achieve 5.5 percent.
Inflation
Experts anticipate that the average inflation rate, as measured by CPI, will increase to 28.5 percent in FY2023. This is because of the uncertain political and economic environment, as well as currency depreciation and increasing energy costs. Nevertheless, inflation is predicted to decrease from 7.5 to 6.5 percent over the medium term. They also expect that the exchange rate will stabilize in FY2024. The government’s actions will steadily lower the inflation rate’s future course to 6.5 percent by FY26, in accordance with steady and sustainable economic growth. The government will focus on increasing export competitiveness, improving agricultural productivity, and creating better job opportunities to lay a strong foundation for the economy over the medium term.
Debt Profile
The report aligns financing assumptions with a medium-term debt management strategy. The government must reduce the debt-to-GDP ratio to 55.2 percent by FY26 as per the Fiscal Responsibility and Debt Limitation Act. Even with no future shocks, the public and publicly guaranteed debt-to-GDP ratio may reach 63 percent in FY26.
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