FY23 – a year of consolidation

CARACHI:

The 2022-23 financial year, which started on Friday, will be a year of consolidation for the Pakistani economy.

The slowdown in economic activity is expected to bottom out and then rebound over the course of the year as the PML-N-led coalition government begins to take corrective action.

Political noise ahead of the second half (July-December) 2023 general elections could continue to disrupt economic momentum in the new fiscal year.

This year will remain challenging for the government in terms of controlling high inflation, as average inflation is expected to reach 16% in FY23 from around 11% in the outgoing fiscal year.

The recent change in the base year could push inflation to its peak in August 2022, from where it would start to fall from September and could “fall to 10% by the end of June 2023”, the official said. prominent businessman and stockbroker Arif Habib in a conversation with La Tribune Express.

The Pakistan Stock Exchange (PSX) may also remain under selling pressure in the first two months of the new financial year, but later it may rebound on lower inflation.

“We can target 20% growth in the benchmark KSE-100 in FY23,” he said.

The rupee would recover and hold below 200 rupees against the US dollar after the IMF disburses the next loan tranche worth around $2 billion by the end of July 2022.

It, however, “could see an average depreciation of 5-6% (to around 211 rupees against the greenback) by the end of the fiscal year in June 2023,” he added.

Arif Habib Limited, Director of Research, Tahir Abbas, added that “economic growth would slow to 3% in FY23 from around 6% in FY22.” The government has set the economic growth target at 5% for the year.

Government measures to calm the overheated economy would slow industrial sector activities, especially in the large-scale manufacturing (LSM) sector, and also lead to a contraction in the services sector.

“The two sectors (industrial and services) have a combined share of 80% of GDP (gross domestic product),” Abbas said.

The third and last major sector of the economy, agriculture, would continue to maintain the current beautiful trends, such as low water availability, availability of quality cottonseed, availability of affordable fertilizers and “especially the announcement of a support price (minimum purchase price) for major crops such as wheat and sugarcane would determine the growth of the entire agricultural sector in FY23,” he said. -he declares.

Habib, who is also a member of the Prime Minister’s Economic Advisory Council (EAC), said the upward trend in global commodity prices would start to subside in a few months.

“The average price of Arabian light crude oil (which Pakistan imports) could fall in the range of $80-85 per barrel in FY23 from around $95 per barrel in FY22.” The share of fuels in the total import bill was 25% in FY22.

The interest rate could remain largely unchanged at around the current level of 13.75% throughout the new fiscal year 2022-23.

“The central bank might consider revising it down after inflation drops,” he said.

He said Pakistan’s economy had come under pressure due to worsening external factors (sharp decline in the country’s foreign exchange services amid the stalling of the IMF lending program in FY22).

The revival of the IMF lending program will soon increase the flow of foreign financing to Pakistan, not only from the IMF, but also from other multilateral and bilateral lenders and friendly countries, including the World Bank (WB) and the Asian Development Bank. development (ADB), said the veteran businessman.

“Pakistan has managed to avoid the likely default in international payments (like the one faced by Sri Lanka) after the government took the right economic decisions,” he said.

China renewed $2.3 billion in commercial loans.

With that, foreign exchange reserves have returned to double digits at $10.3 billion at present.

He said the government’s fiscal situation would improve significantly after the removal of subsidies on petroleum products and electricity.

“In addition, the super tax on the business sector would help in particular to strengthen the fiscal side of the government,” he said.

In addition to this, a significant reduction in imports of Covid-19 vaccines and factories and machinery for industries – after the end of the subsidized industrial investment scheme, namely TERF (temporary economic refinancing facility) – would also help. improve the government’s fiscal position and reduce the current account. deficit.

The current account deficit is expected to narrow to $11-11.5 billion in FY23 from an estimated $16 billion in FY22.

However, export revenues could be affected due to a probable global recession. It should also lower the country’s import bill, he said.

PSX will increase by 20%

Habib said the Pakistan Stock Exchange (PSX) is expected to recover 20% (or more than 8,000 points) in FY23.

It fell 12.3% in the prior fiscal year 2022 to 41,541 points on Thursday, down 32% in US dollar value.

He said the oil and gas exploration and production sector, banks and the fertilizer sector would lead the expected rally at PSX in FY23.

Later, the cement sector could also join the rally once inflation subsides and construction activity picks up.

Rupee will drop 5-6%

The rupee may soon return below 200 rupees against the US dollar and register an average depreciation of 5-6% to 211 rupees in FY23.

Cumulatively, over the outgoing fiscal year, the rupee fell a record 30% to 204.85 rupees on Thursday from the close of 157.54 rupees a year ago on June 30, 2021.

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