Economy shows signs of stability

ISLAMABAD: Amid projections of downward trends in CPI-based inflation, the Ministry of Finance says that Pakistan’s stable outlook of the external sector hinges upon a stable exchange rate, revived domestic economic activities, better agriculture output, low domestic and global commodity prices, and improved foreign demand.

“Given stability in economic indicators, inflation is expected to remain within the range of 9.5-10.5 per cent in August and further decline to 9-10 per cent in September 2024” the Ministry of Finance projects in its monthly report released on Friday.

On the economic outlook for the current fiscal year (FY2025), the report says that the large-scale manufacturing (LSM) sector is projected to sustain a growth trajectory in FY2025 on the back of improved external demand, stable exchange rate, receding inflation and easing of monetary policy.

For the agriculture outlook, Kharif 2024 production is dependent on the crop-specific weather pattern, which will play a critical role in crop yield. Recent rain spells can have both positive and negative impacts on rice, sugarcane, cotton, fodder and vegetables if the rains do not sweep away the farmlands. On the external front, exports, imports and workers’ remittances are following an upward trend. For the outlook, it is expected that exports will remain within the range of $2.5-3.2 billion, imports $4.5-5 billion and workers remittances $2.6-3.3 billion in August 2024.

The stable outlook of the external sector hinges on a stable exchange rate, revived domestic economic activities, better agriculture output, low domestic and global commodity prices and improved foreign demand, it added.

Witnessing the diminishing inflationary pressures, the monetary policy committee (MPC) cut the policy rate by further100 basis points to 19.5 per cent, effective from July 30, 2024. During the July 1–August 2 FY2024 period, money supply (M2) shrank by 3.2 per cent (or Rs1,173.1 billion) compared to 2.0 per cent decline (or Rs627.6 billion) last year. The policy rate adjustment will keep inflationary expectations well-anchored and will support sustainable economic recovery in FY2025.

Pakistan’s economy started FY2025 with firm positive developments, setting a positive tone for the months ahead. As in July 2024, a drop in CPI inflation suggested that the economy is on track to achieve single-digit inflation in the coming months. Both the fiscal and external sectors have shown resilience, mainly due to improved management. The current account has improved, and the FBR tax collection exceeded the target.

Agricultural credit disbursement recorded an increase of 24.8 per cent during FY2024 to Rs2,216 billion compared to last year. A significant rise in the import of agriculture machinery and implements by 122.8 per cent to $ 91.3 million in FY2024 indicates a continued boost in investment in farming technology, paving the way for enhanced productivity and efficiency in the agriculture sector.

Urea offtake during Kharif 2024 (April-July) remained at 1,822,000 tonnes, 13.5 per cent less than Kharif 2023, while DAP offtake increased by 8.2 per cent to 419000 tonnes compared to Kharif 2023. According to the Pakistan Cotton Ginners Association, as on July 15, 2024, a decline in cotton arrivals has been witnessed as the total number of bales dropped from 0.86 million in 2023-24 to 0.44 million in 2024-25.

In Punjab, arrivals of cotton decreased to 0.11 million bales from 0.2 million bales last year. Sindh also experienced a reduction, with arrivals falling from 0.66 million bales to 0.33 million bales. The timely availability of inputs has been ensured regarding agriculture credit, improved seeds and fertilizers to achieve the production targets.

The government managed to reduce the fiscal deficit to 6.8 per cent of the GDP in FY2024, down from 7.8 per cent last year. The primary balance showed a surplus of 0.9 per cent of the GDP, in contrast to a deficit of 1.0 per cent of the GDP in FY2023. The fiscal performance remained robust due to prudent measures.

Total revenues grew by 38 per cent due to a notable increase in both tax and non-tax collection. Non-tax collection grew by 75.4 per cent to Rs 3183.3 billion in FY2024 against last year’s Rs1814.8 billion. The FBR’s revenue growth continued its upward trajectory and surpassed the target by Rs3.8 billion set for July 2024 as the net tax collection grew by 23 per cent with tax collection at Rs659.8 billion from Rs538.4 billion last year.

The external account position improved due to tangible increase in exports and remittances despite upsurge in imports. During July FY2025, the current account deficit shrank to $0.2 billion compared to $0.7 billion last year.

Goods exports increased by 12.9 per cent, reaching $2.4 billion, while imports recorded at $4.8 billion, compared to $4.1 billion last year (16.3 per cent growth). This has led to a goods trade deficit of $2.4 billion, up from $2 billion last year.