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Mounting deficits, high inflation trap economy: govt

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 With fiscal deficit widening by more than 115pc in the first four months (July-October) of the current fiscal year, the Ministry of Finance (MoF) on Friday forecast the inflation to stay high — between 21-23pc — and economic situation faced with ‘severe headwinds’ during the current fiscal year. “For FY23, economic growth is likely to remain below the budgeted target due to devastation caused by floods. This combination of low growth, high inflation and low levels of official foreign exchange reserves are the key challenges for policymakers,” alerted the MoF on Friday.

The report, prepared by the Economic Adviser’s Wing (EAW) of the MOF, reported that the overall fiscal deficit stood at 1.5pc of GDP (Rs1.266 trillion) during July-October 2022-23 as compared to 0.9pc of GDP (Rs587bn) last year.

The fiscal deterioration was because of higher expenditure growth on the back of higher markup payments while the government is facing the unprecedented challenge of providing relief to people in flood-hit areas.

It said the average CPI in the first five months (July-November) of FY23 remained 25.1pc compared to 9.3pc in the same period last year. “It is expected that CPI inflation will remain in the range of 21-23pc”, it said.

Low growth, dwindling reserves and high expenditure are key challenges

The current account posted a deficit of $3.1bn for July-November FY23 against a deficit of $7.2bn last year, mainly due to an improvement in the trade balance.

The current account deficit (CAD) shrank to $276 million in November as against $569m in October.

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