ISLAMABAD: The finance ministry on Saturday voiced concern over persistent increase in the international commodity prices which could build pressure on inflation and balance of payments in the country.

“Government measures to build strategic reserves, especially related to food, along with initiatives to enhance exports will definitely mitigate the associated risks,” the economic adviser’s wing of the finance ministry said in its Monthly Economic Outlook for August.

It said the recent geo-political situation would help Pakistan to grab more market share through exports. However, the risk of pandemics still exists. The government has followed smart lockdown policies with restricting indoor activities, which may have some impact on businesses, especially related to other private services.

The outlook said global energy prices went up by around 5 percent in July 2021 following an increase in all components: oil (2.1pc), coal (16.9pc) and natural gas (18.5pc). Non-energy prices changed little as a group and declined by 0.18pc. Agriculture prices fell 0.8pc in July. Fertiliser prices surged 6pc, metal and minerals increased by 0.20pc.

Says geo-political situation will help Pakistan grab more market share

It said on one side global economic recovery especially in Pakistan’s main trading partners was a healthy sign for growth of exports and workers’ remittances, however, rise in international commodities prices were becoming downside risk in term of high imports value and building inflationary pressure for Pakistan.

With all these possible fallouts, it said there were strong expectations about economic growth in FY22 on the basis of revival of economic activities along with accelerated anti-coronavirus vaccination process.

In recent months, the year on year (YoY) inflation rate is on a declining trend. It is expected that, in the absence of any major unexpected inflationary shocks, inflation may stabilise in August, before resuming its downward trend in the coming months.

“If no new inflationary impulses would occur in August, YoY inflation would decelerate from 8.4pc in July to around 7.7pc in August,” the outlook said, suggesting inflationary impulses in August may come from second-round effects of previous increases in international commodity prices, from increases in administrated energy prices and currency depreciation.

It was claimed with government measures, all in all, YoY inflation in August is expected to fluctuate around the level attained in July within a range of 7.6pc–9.2pc.

The monthly economic indicator is showing continued strong growth, thus, a strong YoY growth of LSM is expected in July on the basis of continued cyclical uptrend of composite leading indicators (CLI) in the main trading partners and domestic growth momentum.

Published in Dawn, August 29th, 2021