ISLAMABAD: Contrary to expectations of the Finance Ministry regarding receding inflationary pressures, the government is anticipating improvements in fiscal and external accounts after signing an agreement with the IMF.
However, the CPI-based inflation exceeded the projection of the Ministry of Finance and now stands at 29.2 per cent for November 2023 against the projected estimates of 26.5 to 27.5 per cent and will further ease out to 25.5-26.5 per cent in December 2023.
“The government’s execution of the FY2024 budget with continued adjustment of energy prices and renewed flows into the foreign exchange (FX) market have lessened fiscal and external pressures. Furthermore, the inflationary pressures are receding and the outlook has improved.
Inflation is expected to decline over the coming months amid receding supply constraints and modest demand. With all these positive developments, further improvement in domestic economic activities is anticipated in upcoming months,” the Ministry of Finance stated in its monthly economic outlook released recently.
The IMF staff and Pakistani authorities, the report says, reached a staff-level agreement on the first review under Pakistan’s Stand-By Arrangement (SBA) on November 15, 2023. Upon approval, Pakistan will have access to $700 million. The SBA supports the government’s commitment to advance the planned fiscal consolidation, accelerate cost-reducing reforms in the energy sector, complete the return to a market-determined exchange rate, pursue SOEs and governance reforms to attract investment and support job creation while continuing to strengthen social assistance.
Domestically, the high base effect would provide a little solace to inflation growth in upcoming months. The spike witnessed in the weekly SPI recorded on November 16, 2023 is primarily contributed by increase in gas charges (up to 3.3719 MMBTU) WoW and YoY at 480 per cent and 1109 per cent, respectively. However, this increase in gas prices will not impact the CPI to much extent. The national CPI inflation comprises urban and rural baskets. Gas charges are included only in the urban CPI basket with a weight of 1.0807. So, the increase in gas prices will have a limited impact on the national CPI inflation as compared to the weekly SPI. Keeping in consideration, the crop cycle of perishables, the supply pressures are expected to be relieved by end-November onwards. Moreover, the reduction of fuel prices by the government would help further ease out inflationary pressures. In view of this, inflation is anticipated to remain low and expected to remain around 26.5-27.5 per cent in November 2023 and further ease out to 25.5-26.5 per cent in December 2023.
According to BOP data, October imports of goods and services were at $ 5.2 billion, higher than $ 4.8 billion in September and marginally lower than the $ 5.4 billion in October 2023. The soothed international oil prices and a stable exchange rate in October somewhat offset by expansion in economic activities contributed to an increase in imports.
Given these recent dynamics and under unchanged policy assumptions, imports would remain at around the current observed levels in coming months. Exports of goods reached $2.8 billion, the highest value observed after June 2022. As a result, the export of goods and services posted a significant growth of 10.5 and 17.8 per cent on an MoM and YoY basis, respectively. In coming months, it is expected that exports will continue to observe its momentum with assumptions of growth in the LSM sector and encourage foreign demand. As a result, the trade balance in goods and services has marginally deteriorated on an MoM basis but improved significantly on an YoY basis. Remittance inflows have touched the $ 2.5 billion mark and observed a positive YoY growth after 13 months. It is expected that it will remain at the current level in coming months. Considering the improvement in all other components of secondary income as well as primary income balance, it will be reflected in the current account balance.
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