ISLAMABAD - The Ministry of Finance has warned that inflation is anticipated to remain high in coming months and might touch 30 percent mark due to the uncertain political and economic environment, currency depreciation and recent rise in energy prices.
“It is expected that inflation will remain around 28 to 30 percent in coming months. The key reasons are the uncertain political and economic environment, currency depreciation, recent rise in energy prices and increase in prices,” said the ministry in its monthly report. It is hoped that resumption of economic stabilization program will help achieve economic stability leading to exchange rate stabilization and provide an opportunity to reap the benefit of falling international commodity prices. This will also help contain inflation and provide a cushion to the government to pass through the lower commodity prices to domestic consumers.
Despite considerable challenges both at domestic and external fronts, the fiscal sector performance remained satisfactory. The government has been able to restrict the fiscal deficit in terms of GDP at the same level as last year while primary balance remained in surplus. The improvement is largely attributed to government’s prudent expenditure management strategy, which resulted in a 3.9 percent decline in federal non-mark-up expenditures on the back of decline in subsidies and grant. The current policy stance has enabled the government to increase expenditures on vulnerable segments of society through BISP and poverty alleviation fund.
On the revenue side, despite slowdown in economic activity, tax and non-tax collection have improved. Particularly, FBR tax collection has maintained its growth trajectory above 18 percent during first seven months of current fiscal year. Encouragingly, domestic tax collection, in particular direct taxes are growing at rapid pace indicating effective implementation of administrative and enforcement measures.
The risks to domestic resource mobilization efforts persist due to economic activity and growth slowdown. However, continuing efforts to boost tax collection would aid in meeting the full year target. Similarly, recently enacted Rs170 billion additional taxes may support further improving the tax collection.
According to the report, the stabilization policy of the government has been successful in improving the current account deficit by 67 percent reduction during first seven months of the current fiscal year whereas the non-markup current expenditures are also significantly reduced to contain fiscal deficit.
During the first half of the current fiscal year, interest payments on the government’s debt significantly contribute to the total expenditures, which can limit the government’s fiscal space to carry out its normal operations, investments, and social and structural policies if the trend continues. A couple of weeks ago, the market has corrected to minimize the difference between inter-bank and open market exchange rates whereas more recently, it is corrected by 5 percent appreciation of the Pakistani Rupee given its economic fundamentals
