Economic outlook promising, claims finance ministry

Industrial activities are gradually improving, inflation is on a downward trajectory and external sector is stable

ISLAMABAD   -   The ministry of finance has noted that the economic outlook is promising as industrial activities are gradually improving, inflation is on a downward trajectory and the external sector is stable. “Going forward, the economy will gain momentum in the coming months of this fiscal year,” the ministry of finance has stated in its monthly, Economic Update and Outlook for May 2024.

As the fiscal year is about to end, the economic indicators demonstrate strengthening of stability in the real, fiscal and external sectors. GDP growth is elevating while inflation rates are on a decline with a positive primary balance, reflecting the effectiveness of recent fiscal consolidation efforts. The economic performance also reveals that agriculture has been a major contributor to this fiscal year’s economic upswing, attributed to government-led initiatives that enhanced input supply and credit disbursements. The LSM sector experienced a slight contraction but has shown improvement compared to the previous year. Fiscal measures have boosted both tax and non-tax revenues, helping maintain a stable fiscal deficit, while improvement in the current account balance highlight a healthier external sector driven by better trade balances and increased foreign direct investment.

The inflation outlook for May 2024 continues on a downward trajectory, attributed to elevated inflation levels previous year and improvements in domestic supply chain of perishable items, staple food like wheat and reduction in transportation costs. Inflation is anticipated to remain within the range of 13.5-14.5 percent for May 2024. Nonetheless, there are prospects for a gradual easing, with expectations of a decrease to 12.5-13.5 percent by June 2024.

CPI inflation was recorded at 17.3 percent on a year-on-year basis in April 2024 as compared to 20.7 percent in previous month while 36.4 percent in April 2023. During Jul-Apr FY 2024, CPI stood at 26.0 percent against 28.2 percent in the same period last year. On month on month (MoM) basis, it decline by 0.4 percent in April 2024 compared to an increase of 1.7 percent in the previous month.

The report stated that April BoP data demonstrates that exports of goods and services increased significantly by 22.0 percent on YoY basis while, it increased marginally by 1.6 percent on MoM basis. On the other hand, imports of goods and services have also increased considerably by 21.5 percent on YoY basis while it decreased by 2.7 percent on MoM basis. Resultantly, trade deficit of goods and services widened by 20.6 percent on YoY basis whereas, it decreased by 9.0 percent on MoM basis. Other factors which favored current account surplus of $0.5bn are improved primary income balance and worker remittances. For the outlook, it is expected that exports and imports along with remittances will continue to observe their trend and current account for FY2024 will remain stable – signaling improved BoPand foreign exchange reserves.

The fiscal consolidation efforts helped in improving the revenues from both tax and non-tax collection. Moderate recovery in economic activities, a gradual increase in imports complemented by various policy and administrative reforms & measures including anti-smuggling and broadening tax measures, collectively increased the tax collection by 30.6 percent during Jul-Apr FY2024. With an unwavering commitment to achieving the full-year target, FBR is putting in maximum effort. Furthermore, it is focusing on technology advancement measures, which will enable FBR to improve the tax collection hence the tax to GDP ratio.

The expenditure on the other hand remained under significant pressure due to rising markup payments. However, to cope with this challenge, the government has adopted a prudent expenditure management strategy, which helped in restricting the growth in non-mark-up current spending to 20.4 percent during July-March FY2024 relative to a 54 percent increase in mark-up expenditures. Resultantly, a primary surplus of 1.5 percent of GDP has been achieved, indicating substantial progress towards meeting the full-year primary surplus target of 0.4 percent of GDP. The government is highly committed to strengthening the public finances through reforms and initiatives on both revenue and expenditure sides. The aim is to promote sustainable and equitable growth by ensuring fiscal sustainability and creating adequate budgetary resources for social and development projects.

Farmers are in the process of sowing Kharif crops 2024 in the country. The initial input situation highlights favorable production against last year’s Kharif production. Furthermore, the commodity prices are expected to remain stable due to better crops production. The targeted subsidies will also be critical to deal with the financial challenges farmers face during the season. In this regard, the incentives offered by the Federal Government and the recently introducing Kissan Card Scheme by Government of the Punjab and incentives by other provincial governments are favorable for the agriculture-led economic growth. According to PMD, above-normal precipitation is expected to benefit agriculture in Pakistan.

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