Although the economic recovery is underway, the international developments and persistent high domestic inflation might impact domestic economic activities, says Monthly Economic Update and Outlook, April 2022 released here on Friday.
“The domestic and international scenario is changing over the course of time. Thus, inflationary, and external sectors risks are building macroeconomic imbalances,” notes the report released by Finance Ministry.
Among the determining factors of current trends in both international and domestic inflation are supply chain issues and surging international commodity prices.
It says, under normal circumstances, these prices follow a cyclical pattern; implies that normally, price spikes are followed by a cooling-off period. But, it adds, the current cycles of international food and oil prices were different as the volatility in the markets is high compared to historical standards. Second, due to geo-political tensions, the increasing trend in prices may remain intact.
The high inflation and the accompanying monetary policy reaction may temporarily dampen the cyclical position of Pakistan’s economy thereby reducing growth prospects in the short run.
But in the long-run, Pakistan’s productive capacity will determine the growth as well as employment prospects, it says adding this required a substantial upward shift in the propensity to invest and of the productivity of investment expenditures.
Stimulating the propensity to invest implies that a larger share of the income that the country generates is used to finance Gross Fixed Capital Formation. Structural policies are to be further designed to attract more productive investments from foreign sources (Foreign Direct Investments) and from both private and public domestic investors.—APP
