Finance ministry projects inflation at 22.5-23.5 percent for March

Recovery is expected in LSM sector during remaining months of CFY

ISLAMABAD  -  The ministry of finance has projected that inflation would decline in the range of 22.5-23.5 percent in March 2024 despite the upward revision in petrol prices and the influence of the Ramazan.

Inflation is projected to hover around 22.5-23.5 percent in March 2024. How­ever, there are expectations of a gradual easing further to 21-22 percent in April 2024. In its monthly report, the ministry of finance has noted that inflation outlook is moderate on account of incumbent government’s strong resolve of curbing inflationary pressure by instituting en­hanced administrative measures. “The government has announced Ramazan Relief Package with increased allocation from earlier Rs 7.5 billion to Rs 12.5 bil­lion. This will provide relief to the masses and cushion the impact of heightened demand during the religious festival”. Furthermore, the phenomenon of the high base effect is also contributing to the moderation of inflationary pressures. Ad­ditionally, the global context plays a role in shaping inflation dynamics.

In last quarter of FY2024, inflation out­look is predicting a moderate headline in­flation on account of favourable domestic and global factors. With improved Rabi 2023-24 outlook as the sowing of wheat is aligned to its target – the agriculture sec­tor will contribute to growth at its poten­tial level. On the back of strong growth in agriculture, a recovery is also expected in LSM sector during the remaining months of CFY. The performance of high frequen­cy indicators is also signaling growth prospects in the ongoing fiscal year. Be­sides this, external and fiscal sustainabili­ty is also contributing to economic revival. Pakistan and IMF have reached a Staff-Level Agreement (SLA) on the final review of $3 billion SBA to secure a $1.1b tranche in coming month. However, sustainable economic recovery requires continuation of fiscal consolidation and prudent policy stance, timely and adequate financial in­flows to meet gross financing needs and external sector stability.

According to BOP data for February 2024, current account turns to surplus of $128 million (Deficit of $ 303 million in Jan, 2024). The key factor for this im­provement is a decline in the trade defi­cit in goods and services that declined by 14.2 percent on MoM basis ($ 2.2b in Jan 2024 to $ 1.9b in Feb 2024). Both exports and imports of goods and services de­clined by 5.8 and 9.1 percent, respective­ly. Similarly, balance on primary income improved by 36 percent, due to lower primary income debit. However, remit­tances which may play more instrumen­tal role in current account improvement, decreased by 6.2 percent on MoM basis. For the month of March, it is expected that exports of goods and services will improve and reach at level around $ 3.5b due to favorable foreign demand by Paki­stan’s main exports destinations.

Similarly, imports of goods and services will touch around $ 5.5b in March 2024. Nonetheless, remittances are expected to improve due to positive seasonal and Ramazan-eid factor. Considering these factors, as well as other components, the current account will remain in sustain­able limit. During Jul-Jan FY2024, net federal revenues grew by 57.0 percent to Rs 4379 billion from Rs 2798 billion same period last year. The sharp rise in revenues was fueled by a notable uptick in non-tax collection, which increased by 105 percent to reach Rs 2140 billion against Rs 1046 billion last year. The sub­stantial increase in non-tax collection is attributed to higher receipts from mark up (PSEs & others), dividends, SBP profit, royalties on oil/gas, and petroleum levy.

According to the latest available data, FBR net provisional tax collection main­tained its momentum, increasing by 30.0 percent during Jul-Feb FY2024 to reach Rs 5831 billion from Rs 4494 billion last year. The tax collection surpassed its target by Rs 2.7 billion in the first eight months of the current fiscal year. Notably, in February 2024, net collection surged by 29.3 percent YoY, reaching Rs 682 billion compared to Rs 527 billion last year. Dur­ing Jul-Feb, FY2024, domestic tax collec­tion grew by 32.5 percent, while customs duty increased by 13.0 percent.

On the expenditure side, total expen­ditures increased by 49.0 percent to Rs 7532 billion during Jul-Jan FY2024, up­from Rs 5058 billion last year. Within to­tal, current spending rose by 45.0 percent primarily due to a 60 percent increase in markup payments during Jul-Jan FY2024. In contrast, the growth in non-mark-up current expenditures has been recorded at 26 percent. Overall, in the first seven months of the current fiscal year, the fis­cal deficit increased to 2.6 percent of GDP (Rs 2721 billion) against 2.3 percent of GDP (Rs 1974 billion) last year. More­over, the contained primary expenditures helped in improving the primary surplus to Rs 1939 billion during Jul-Jan FY2024 from Rs 945 billion last year.

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