Finance ministry expects inflation to reach 5.8-6.8pc in November

ISLAMABAD: The Ministry of Finance has projected that sustained policy support and external stability will continue to foster economic recovery, offering a ‘cautiously optimistic outlook’. The ministry expects inflationary pressures to ease further, predicting inflation to range between 5.8 per cent and 6.8 per cent in November, declining to 5.6-6.5 per cent by December 2024.

In its Monthly Economic Outlook released on Wednesday, the ministry highlighted that the economy’s real sector is benefitting from targeted policies in agriculture and industry.In agriculture, wheat sowing is underway with the goal of meeting target production. The government continues to ensure the timely provision of essential inputs to farmers at reasonable prices.

Meanwhile, the large-scale manufacturing (LSM) sector is showing signs of recovery. Despite a year-on-year (YoY) decline, month-on-month (MoM) performance indicates resilience, with gradual production increases in key areas such as textiles and automobiles.

The ministry added that fiscal consolidation, external stability and reduced inflation will further support economic activities in the coming months.For the first time in years, Pakistan recorded a current account surplus of $218 million during July-October FY2025, compared to a $1,528 million deficit last year. October alone saw a surplus of $349 million, marking the third consecutive month of surplus.

Exports, imports, and workers’ remittances are expected to continue their positive trends in November, with exports estimated at $2.5-$3 billion, imports at $4.5-$4.9 billion, and remittances at $2.8-$3.3 billion.

During July-October FY2025, the economy displayed better-than-expected improvement across all sectors. Key highlights include declining inflation, increased IT exports, a surge in remittances, and stabilisation of fiscal and external sectors, supported by a downward trend in interest rates.

The LSM sector contracted by 0.8 per cent in July-September FY2025, an improvement compared to the 1.0 per cent contraction in the same period last year. On an MoM basis, the sector grew by 0.5 per cent in September 2024. The auto industry showed remarkable growth, with production and sales increasing by 21.2 per cent and 21.8 per cent, respectively.

Key developments include: car production going up 51.0 per cent; truck and bus production 80.2 per cent; jeeps and pickups 55.1 per cent; while tractor production went down 54.2 per cent.

Cement dispatches declined by 7.9 per cent to 14.6 million tonnes in July-October 2024, primarily due to reduced domestic demand. However, exports rose significantly by 30.7 per cent.

Inflation is on a downward trajectory, remaining in single digits. During July-October FY2025, CPI inflation averaged 8.7 per cent, significantly lower than the 28.5 per cent recorded in the same period last year. YoY inflation in October 2024 was 7.2 per cent, compared to 6.9 per cent in September 2024 and 26.8 per cent in October 2023.

Major contributors to inflation include perishable food items (15.9 per cent), housing and utilities (19.2 per cent), and clothing and footwear (14.6 per cent), while transport and non-perishable food prices declined by 6.1 per cent and 1.5 per cent, respectively.

Net federal revenues surged by 186 per cent to Rs4,019 billion during July-September FY2025, driven by the State Bank of Pakistan’s surplus profits of Rs2,500 billion. Tax revenues increased by 25.5 per cent, while non-tax revenues jumped by 566.9 per cent.

Expenditures grew slightly by 1.8 per cent, while mark-up expenses declined by 5.3 per cent due to lower policy rates. This resulted in a fiscal surplus of Rs1,896 billion (1.5 per cent of GDP) compared to a deficit of Rs981 billion (0.9 per cent of GDP) last year. The primary balance posted a surplus of Rs3,202 billion (2.6 per cent of GDP).

Exports grew by 8.7 per cent to $10.5 billion during July-October FY2025, while imports rose by 13 per cent to $18.8 billion. Workers’ remittances increased significantly by 34.7 per cent to $11.9 billion, with Saudi Arabia remaining the largest contributor.

Foreign direct investment (FDI) rose by 32.3 per cent to $904 million, driven by investments from China ($414 million), Hong Kong ($100 million), and the UK ($94 million). The power sector accounted for 46 per cent of total FDI inflows. Pakistan’s total liquid foreign exchange reserves stood at $16 billion as of November 8, 2024, with the State Bank holding $11.3 billion.