PM says economy poised for take-off as inflation cools to seven-year low

ISLAMABAD: Prime Minister Shehbaz Sharif Wednesday expressed satisfaction over the macroeconomic stability achieved by the country, emphasizing that it was now time to move forward towards growth.

Chairing the federal cabinet meeting here, he said, “Now we have to take off in the export sector, as there is no other option for economic development.”

Shehbaz noted that revenue receipts as compared to the last 25 years were very high but a very big gap remained in revenue collection in view of the targets fixed as per the IMF conditions.

He underscored the need for export-led growth to secure economic development, and at the same time noted that the Federal Board of Revenue (FBR) needed to undertake enforcement measures to achieve the revenue targets as per the IMF conditions.

“Enforcement is key to our success story,” he said, adding the FBR should feel very encouraged and enthusiastic from the government’s achievements of nine months saying, “InshaAllah not only the gap would be filled but also the targets would be achieved”.

He also appreciated Deputy Prime Minister Ishaq Dar, Finance Minister Muhammad Aurangzeb and governor State Bank for making big efforts as a result of which Rs72 billion revenue was received in the head of Advance Deposit Receipt (ADR).

He said the FBR chairman also made laudable efforts to achieve the December revenue target but the revenue received in the head of ADR also had a contribution saying 97 percent of the target committed with the IMF had been achieved.

Describing the launch of “Uraan Pakistan”, a homegrown five-year economic plan, as an important initiative, the prime minister was confident that it would prove to be a good omen for the New Year. He, however, emphasized the need for diligence and steadfastness to achieve the targets and appreciated the contributions made by the ministries in the preparation of the economic plan.

The prime minister pointed out that foreign remittances had reached 15 billion dollars in the first five months of the current fiscal year, expressing confidence that they could reach the historic $35 billion mark this fiscal year if the current trend continued.

He said the government was rapidly working on rightsizing and downsizing and would also encourage the ministries which made progress with regard to e-governance.

He said the trial run of Faceless Customs Assessment System at the Karachi Port had facilitated the business community, as it reduced the inspection time of containers by 39 percent. Shehbaz said smuggling of sugar to Afghanistan had been brought to zero, crediting the army chief for his efforts in this regard.

He mentioned that these success stories had been achieved despite the sit-ins by certain elements. The prime minister said efforts were underway for rightsizing and downsizing. He said a world class airport had been established in Gwadar with the support of China and this facility would be turned into a world class commercial hub, highlighting that there was an immense scope of it.

Shehbaz also paid tribute to the security personnel for their sacrifices in the war against terrorism. He recalled that the then government in 2021 had released hundreds if not thousands of terrorists due to which terrorism resurfaced.

Deputy Prime Minister and Foreign Minister Ishaq Dar informed the cabinet that Pakistan was marking the start of its term as a non-permanent member of the UN Security Council for 2025-2026. The cabinet commended the country’s achievement on the diplomatic front. Furthermore, the prime minister sought details of the last three months’ public sector imports via Gwadar Port to be presented in the next cabinet meeting.

The cabinet approved the rules and procedures for the appointment of officers of Information Group in the Pakistani missions abroad to further ensure transparency and merit in the process of their appointment. It also approved the registration of Liaquat University of Medical and Health Sciences, Thatta.

Meanwhile, in a remarkable shift, Pakistan’s inflation rate cooled down to 4.07 percent in December 2024 from 4.86 percent in November and a dramatic drop from 29.66 percent a year earlier. This marked the lowest inflation rate in nearly seven years and the fifth straight month of single-digit inflation — a milestone last achieved in early 2021.

The first half of the FY2024-25 (July-December) saw average inflation plummet to 7.22 percent, a stark contrast to 28.79 percent during the same period last year, according to the Pakistan Bureau of Statistics (PBS).

Economists cite stable commodity markets, improved supply chains, and a relatively steady rupee as driving factors, though they also credit a “base effect” from last year’s high inflation rates. Notably, this December’s inflation reading is the lowest since April 2018.

Core inflation, which excludes volatile food and energy prices, eased to 8.1 percent in December, compared to 8.9 percent in November and a significant drop from 18.2 percent in December 2023.

Urban inflation declined to 4.4 percent year-on-year, while rural inflation fell to 3.6 percent, underscoring a broad-based easing in price pressures.

Despite drop in inflation, the real interest rates remain among the highest globally. With the State Bank of Pakistan’s policy rate at 13 percent and inflation at 4.07%, the real interest rate now stands at 8.93 percentage points — a level economists warn could strain debt sustainability and stifle growth.

Calls for an interest rate cut are growing louder. Analysts argue that the prolonged high rates risk suffocating economic recovery and exacerbating fiscal pressures, as debt servicing already consumes over 75 percent of government revenues. Lower rates, they suggest, would stimulate economic activity and ease burden on public finances.

The International Monetary Fund forecasts Pakistan’s inflation to average 9.2 percent this fiscal year, far below the 23.4 per cent recorded in FY2024. While this outlook suggests further easing, economists caution against complacency.

Global energy price shocks and currency fluctuations could quickly reignite inflationary pressures, highlighting the need for prudent economic management.

A steep decline in food inflation has been a key driver of the downward trend. Food prices rose by just 0.27 percent year-on-year in December, with no change from November. However, potatoes, fresh fruits, vegetable ghee, and cooking oil saw month-on-month price increases of 12.4pc, 8.8pc, 5.4pc, and 4.4pc, respectively. Conversely, chicken prices plunged by 13.1pc, while onions, tomatoes, and pulses also recorded significant declines.

The Wholesale Price Index (WPI) fell to a 50-month low of 1.93pc in December, down from 2.3pc in November and a staggering 27.33pc in December 2023. This suggests retail inflation may continue to stabilize in the coming months, as wholesale price trends often ripple through to consumer prices.

Among non-food items, solid fuels, household textiles, and woolen garments saw price hikes, while electricity charges fell by 5.7pc. Transportation costs also declined slightly, offering some relief to consumers.