The government has set a GDP growth target of 3.5 per cent for the budget 2023-24 against the provisional growth figure of 0.29 per cent for the outgoing financial year 2022-23. During 2023-24, the monetary policy is expected to play a challenging role in striking a balance between price and output objectives amid government endeavours for economic revival.
The challenge would be to strike a balance between growth and stability in such a way that monetary policy tools provide much-needed support to economic growth while containing inflationary pressure. The inflation is targeted at 21 per cent on average in 2023-24. For inflation, the next fiscal year largely depends on a fall in global oil and commodity prices, political stability, growth of commodity-producing sectors, restoration of investor confidence to attract higher inflows of foreign investment and availability of external finances for BOP support, etc. With falling global inflation, domestic inflation is expected to gradually moderate next year but would remain in high double digits owing to risks of supply-side constraints and spillover of recent currency depreciation episodes. The Annual Plan for 2023-24 tabled before the Parliament states that the economy is set to grow by 3.5 percent in 2023-24 with projections of 3.5 percent for the agriculture sector, 3.4 percent for the industrial sector and 3.6 percent for the services sector. The revival of growth will depend on political and macroeconomic stability, external account improvement, supportive monetary and fiscal policies and an expected fall in global oil and commodity prices.
The agriculture sector is expected to grow by 3.5 percent in 2023-24 with expected contributions of important crops (3 percent), other crops (3.5 percent), cotton ginning (7.2 percent), livestock (3.6 percent), forestry (3 percent) and fishing (3 percent). The agricultural growth will be contingent upon expected favourable weather conditions, ample availability of water, certified seeds, fertilizers, pesticides and agriculture credit facilities at affordable costs for the revival of the crops. Moreover, the increased productivity of the livestock subsector is imperative for the revival of agriculture sector. The revival of cotton and sufficient production of wheat will not only support growth momentum but will also ease out the balance of payment pressures through lesser import requirements.
The industrial sector is expected to recover in 2023-24 as demand and supply shocks are expected to dissipate. It is expected that the sector will grow by 3.4% with LSM at 3.2 percent, mining and quarrying (1.2 percent), small & household manufacturing (8.8 percent), slaughtering (3.8 percent), electricity generation & gas distribution (2.2 percent) and construction (1.5 percent). The industrial sector is expected to get a boost from improved inputs and energy supplies on the back of an anticipated fall in global oil and commodity prices, public sector expenditure and mega projects for infrastructure development. However, there are downside risks of high-interest rates and exchange rate uncertainties, which may raise the costs of working capital and raw material. Similarly, construction in the housing sector and infrastructure projects may be affected by higher prices of construction materials. The services sector is also expected to accelerate its growth to 3.6 percent in 2023-24. The envisaged growth in commodity-producing sectors will complement the targeted growth in the services sector.
The uptick in the economic activity in the agriculture and manufacturing sectors will translate into increased growth in wholesale & retail trade and transport, storage & communications. Moreover, the tourism industry is expected to gain momentum and generate socioeconomic dividends that will have a trickle-down effect on retail trade, hotels and restaurants. The investment-to-GDP ratio is expected to increase from 13.6 percent in 2022-23 to 15.1 percent in 2023-24 due to stabilization and political stability. Fixed investment is expected to grow by 40.5 percent on a nominal basis, whereas as per percentage of the GDP, it is expected to increase from 11.9 percent in 2022-23 to 13.4 percent in 2023-24. The national savings rate is targeted at 13.4 percent of the GDP. Under financial accounts, outflows of $1,871 million were recorded during Jul-Apr 2022-23 as against $8,140 million inflows were received during the corresponding period of the last fiscal year.
The net foreign direct investment remained negative at $104 million as outflows surpassed inflows. FDI outflows stood at $1,276 million while inflows were recorded at $1,172 million in FY23. Similarly, portfolio investment also does not depict a rosy picture and net portfolio investment remained negative at $1,008 million in Jul-Apr 2022-23 as compared to a positive of $140 million during the same period of last year. The liabilities of the Central Bank ballooned against the backdrop of inflows received from Saudi Arabia, the UAE and China under bilateral arrangements to support the falling reserves of the SBP. The amortization payments increased to $9,039 million from $6,977 million, whereas disbursements decreased from $8,032 million to $7,313 during the period under review. Disbursements decreased due to lesser inflows under long-term and short-term loans. An increase in outflow of FDI and FPI along with higher amortization have resulted in significant depletion of the SBP’s liquid foreign exchange reserves during Jul-Apr 2022-23.