ISLAMABAD-The ministry of finance has noted that inflationary pressure is expected to marginally ease out in November mainly due to smooth domestic supplies, unchanged energy prices in outgoing month and a stable exchange rate.
“The recent PM Package for agriculture has made an optimistic crop outlook which will decelerate food inflation in the months ahead. Moreover, the food supply chain disruption caused by flash floods is also settling down which has smoothened the food and other related markets. Thus, food inflation is also expected to remain on the lower side because the administered prices are maintained restricting the pass-through of energy led inflation,” the ministry noted in its, ‘Monthly Economic Update & Outlook’. Though international commodity prices are showing an upward trend on annual basis and being net importer, we are affected by it. However, the stable exchange rate, government’s administrative, policy and relief measures are providing cushion to absorb its impact. It is expected that CPI inflation on a annual basis will marginally decline in the month of November and may remain in the range of 23-25 percent. The ministry has warned that delayed sowing of wheat crop in Sindh is making it challenging to achieve the targets set for Rabi-2022-23 season. However, the supporting measures by both federal and provincial governments may reverse the negative effects on agriculture sector. The report noted that Pakistan’s trade deficit would improve in November. Remittance inflows are expected to remain above from its current level. Given the expected other components of secondary income, as well as primary income balance, the expected improvement in the trade balance will be reflected in the current account balance. Imports have roughly stabilized at relatively low levels during the first four months of FY23. The soothed international oil prices, stable exchange rate, and contained domestic demand are contributing to the decline in imports. Given these recent dynamics and under unchanged policy assumptions, imports would remain at around current low levels during the coming months. On the export side, sluggish foreign demand, and domestic supply issues, following the floods-induced destruction of exportable crops are responsible for the weak export performance. However, in the coming months, it is expected that exports will improve on account of targeted policies announced recently by the government to stimulate exports. But these dynamics may be hindered if the economic conditions in the main export markets remained volatile and uncertain. The ministry stated that country’s expenditures would increase and revenue would be affected in the months to come. “In an already constrained fiscal position, the government is compelled to allocate additional funds to maintain the law-and order situation due to the ongoing long march in the country. All these would put pressure on total expenditures. On the revenue side, although FBR tax collection has maintained its growth trajectory above 16 percent during the first four months, the slowdown in economic activity due to floods and political activity may have some repercussions on tax collection”. During the first quarter of FY23, acceleration in total expenditures outpaced the growth in revenues. The additional requirement of substantial expenditures on flood-related activities has brought various challenges to fiscal sustainability. According to the report, lower pace of economic activity especially due to floods also weighs on tax revenues. However, the support of the government to the most needed income groups as well as key sectors of the economy especially agriculture will help in turning the economy toward normal. A manageable current account deficit and its guaranteed financing by healthy financial inflows are required. Government has a vibrant financial plan in place for FY23. Government has met all its Debt obligations in timely manner and is comfortable on its medium to long term obligations. Over medium term, sustainable growth requires economic fundamentals based on balanced economic policies. Sufficient investment is needed to increase production capacity and productivity in the economy to realize the high growth of potential output. Stabilizing the output gap demands accommodative fiscal and prudent monetary policy to ensure balance growth path.