Finance ministry sees drop in inflation

Current account will remain in manageable limit during remaining months of FY2024

ISLAMABAD   -  The ministry of finance has projected that the inflation outlook for the upcom­ing month points towards a downward trajectory owing to better crops and a smooth supply of commodities.

Similarly, favorable input situations are set to bolster Rabi crop production. On the other hand, industrial activity in December remained positive despite a specific sectoral slowdown. Notwith­standing, restrictive monetary and fis­cal policies, the optimism is fueled by improvements in cyclical conditions in Pakistan’s export markets facilitating steady economic recovery. The stabili­zation measures encouraging business confidence coupled with exchange rate stability, contribute to a positive eco­nomic outlook for Pakistan amidst on­going challenges, the ministry of finance noted in its monthly report.

In February 2024, the administered prices of petrol and diesel increased in response to a notable surge in crude oil prices, highlighting the direct influence of global market dynamics on domestic fuel costs. Despite the upward adjust­ment in transportation expenses and gas prices, the inflation outlook for the upcoming month may have a downward trend, primarily due to a decrease in the prices of perishable items on the back of better crops and ease in supplies. Addi­tionally, the high base effect would fur­ther contribute to keep the inflationary pressure on the lower side. Inflation is projected to hover around 24.5-25.5 percent in February 2024, with expecta­tions of a further easing to 23.5-24.5 per­cent in March 2024.

During January – 2024, exports of goods and services increased by 15.8 percent on YoY basis, due to observed expansion in domestic economic activi­ties and revived economic situation in Pakistan’s main exports destinations. However, on MoM basis it decreased by 4.4 percent, due to negative seasonal effect in January. On the other hand, im­ports of goods and services increased by 21.3 and 11.0 percent on YoY and MoM basis respectively. Higher imports have been reflected in the trade deficit of goods and services, which increased by 31.1 and 48.9 percent on YoY and MoM basis, respectively. The current account balance has been partially offset by re­mittances – posted significant growth of 26.2 percent on YOY basis – despite negative seasonal effect. Current account turns to deficit of US$ 269 million in Jan­uary - 2024 as compared surplus of US$ 404 million in December – 2023. In the current baseline scenario, an improve­ment and recovery has been expected in exports, imports and remittances on a monthly basis. As a result, current ac­count will remain in manageable limit during remaining months of FY2024.

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