Inflation may reach 30pc, warns ministry

Price hike, currency depreciation, political situation, energy crisis termed main factors

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

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