The Economic Outlook for 2022-23 Chapter 4: The Economic Outlook for 2022-23 Developments during 2022-23 will be affected by a number of factors. First, the year ended with very low foreign exchange reserves of$9.8 billion with the SBP, enough for import cover of 1.5 months. Fortunately, Pakistan has been able to get back to the IMF Program which is expected to continue till June 2023. There is agreement on the macroeconomic targets and on the reform agenda for 2022-23. Second, the global economy is moving into a recession. However, inflation is expected to be higher due to the lagged impact of expansionary policies adopted after COVID-19. Now with efforts to contain inflation, interest rates globally are likely to be significantly higher. Third, Pakistan has been hit by the worst natural disaster in its history, the floods. Over 33 million people have been affected and the damage to the economy is estimated at$30 billion. This will impact severely on the GDP growth rate and put further pressure on the price level due to emerging supply shortages. Fourth, efforts at restricting the current account deficit have led to a policy of restricting LCs on imports by the SBP. This is creating shortages and is impacting on domestic production and prices. Fifth, Pakistan today faces a political quagmire, with head-on confrontation between the coalition government and the PTI. This has increased instability and risk perceptions of the economy. The incumbent government has also been constrained from taking strong policy actions. The outlook for 2022-23 is presented in five sections. Section 4.1 gives a perspective on trends in the global economy in 2022 and 2023. Section 4.2 gives the corresponding projections for the economy of Pakistan as contained in the Annual Plan for 2022-23 and in the projections given in the IMF Program. Section 4.3 modifies these projections in light of the large negative impact of the floods. Given the vital nature of the balance of payments projections in preventing a near default position of Pakistan, the likely outcome in 2022-23 is presented in Section 4.4. Also, given the importance also of the budgetary outcome, this is presented in Section 4.5. Projections reflect the impact of the floods on the two deficits. 47