ISLAMABAD-The ministry of finance has said that inflation is expected to ease out in July and stated that to achieve higher and sustainable economic growth, the government will require prudent and effective economic decisions, political and economic certainty, and continuation of friendly economic policies along with enough foreign exchange financing.
“Inflation in July 2023 is expected to ease out compared to the month of June 2023,” the ministry noted in its monthly report. The inflation for the month of July 2023 is expected to remain in the range of 25-27 percent. The recent decrease in administered prices of petrol and diesel will be transmitted into lower domestic prices of essential items by impacting the transportation cost. Moreover, the declining international commodity prices are expected to offset the inflation spikes that emerged due to domestic supply shocks. The benchmark index of international food commodity prices declined again in June, 2023 led by price decreases for major cereals and most types of vegetable oils. The timely measures taken by the government to boost the agriculture sector (Kissan Package) would result into better crop outlook and smoothen the domestic supplies; moreover, the expected political stability and stable exchange rate would help to achieve price stability.
For FY2024, it is expected that both exports and imports will gradually increase in coming months. Taking other factors into account, the current account deficit will remain at a sustainable limit in FY2024. Amid the domestic and global scenarios, exports of goods and services as per BOP data in the month of June are on a decreasing trend, which declined by 16.0% and 29% on MoM and YoY basis, respectively. Similarly, declining global commodity prices and domestic economic activities reflected in import numbers, decreased by 17.7% and 54.9% on MoM and YoY basis, respectively. This is also reflected in the contained trade deficit for goods and services. Despite the decline in workers’ remittances, a significant decline in the trade deficit reflected in the surplus of the current account for the last two quarters of FY2023.
Despite a substantial decline in imports, LSM, and the overall slowdown in economic activity, the government’s effective resource mobilization strategy remained effective in maintaining FBR tax collection growth at 16.6 percent, while non-tax grew by 31 percent. Similarly, on the expenditure side, though mounting interest expenditure remained a significant burden on fiscal accounts, curtailing non-interest spending triggered a primary deficit to narrow down. For FY2024, the government is taking various measures for domestic resource mobilization. The government has unveiled a comprehensive strategy for every sector of the economy in an effort to revive economic growth and move towards a higher inclusive and sustainable growth trajectory. Further different administrative and policy measures have been introduced to increase the tax collection. Additionally, SBP’s withdrawal of restrictions on imports will create demand for imports. All these measures will be supportive in improving the revenues. On the expenditure side, various austerity measures are in place that will be helpful in reducing non-productive expenditures.
FY2023, a challenging year has ended. The government succeeded in ensuring the sustainability of the external and fiscal sectors through various tough decisions and stabilization measures. In FY2024, the government is gearing towards achieving higher growth of 3.5% through various measures like the Kissan package, industrial support, export promotion, encouragement of the IT sector, and resource mobilization, etc. To achieve higher and sustainable economic growth, it will require prudent and effective economic decisions, political and economic certainty, and continuation of friendly economic policies along with enough foreign exchange financing. The recent IMF approval of the Stand- By Arrangement and other bilateral and multilateral inflows will pave the way to further improve the macroeconomic environment and the confidence of economic agents.