ISLAMABAD: Inflation has dropped to single digit and is expected to remain within the range of eight percent to nine percent in September and October 2024, says the Finance Division (FD).
The Division issued, “Monthly Economic Update & Outlook September 2024”, which noted Pakistan’s economy is indicating positive developments during the first two months of fiscal year 2025 as most of the economic indicators have shown improvement.
Inflation has dropped to single digit, industrial output has increased, and large exporting sectors have witnessed growth, reflecting an optimistic outlook for exports.
The current account deficit contracted, while the fiscal sector remained resilient, mainly attributed to prudent measures. This trajectory is expected to continue in the coming months.
The outlook noted that following a phase of decline, Large Scale Manufacturing is now regaining its footing and major exporting sectors show readiness to scale up production. This recovery is expected to be bolstered by a favourable external environment, a stable exchange rate, and declining inflationary pressures.
Moreover, an accommodative monetary policy stance, improved investor’s confidence and the global market recovery, will provide additional support to foster the sustainable industrial growth. Government’s commitment to fiscal consolidation will contribute to improved fiscal accounts. For agriculture, the outlook of Kharif 2024 production, weather being critical factor will pave the way for productivity. Inflation is expected to remain within the range of eight per cent to nine per cent in September and October 2024.
On external front, it is expected that exports and imports will observe an increase in momentum. In September 2024, the exports are likely to remain within the range of $2.5-3.0 billion, imports $4.5-5.0 billion and workers’ remittances $2.7-3.2 billion.
During fiscal year 2025 (July-August), imports of agricultural machinery and implements increased by 105.6 per cent to $17.6 million compared to the same period last year. This growing commitment to mechanisation and innovation in farming practices is expected to enhance yield in coming months. Urea offtake during Kharif 2024 (Apr-Aug) recorded at 2,381 thousand tonnes, 13.6 per cent less than Kharif 2023 and the DAP offtake decreased by 21.9 per cent compared to Kharif2023.
The decline may be attributed to late sowing of Kharif crops as a result of climate change, lower prices of wheat and reduction in cotton acreage.
LSM output increased by 2.4 per cent in July 2024, rebounding from a contraction of 5.4 per cent in July 2023, reflecting improved market conditions and policy support. During the period, 14 out of 22 sectors witnessed positive growth which includes textile, food, beverages, wearing apparel, coke and petroleum products, chemicals, automobiles and paper and board.
Textile, with the largest weight in LSM (18.2), turned positive after 24 months. Additionally, production and sales of all vehicles witnessed an increase of 19.5 per cent and 16.3 per cent respectively during Jul-Aug FY2025, of which ,cars production increased by 15.0 per cent and trucks and buses by 120.4 per cent, whereas, tractor production showed a decline of 26.9 per cent.
Total cement dispatches recorded 6.4 million tonnes during Jul-Aug FY2025, reflecting a 17.8 per cent decline compared to the same period last year. Domestic dispatches were 5.2 million tonnes, down 20.7 per cent from 6.6 million tonnes last year, while exports witnessed a slight dip of 1.6 per cent, falling from 1.18 million tonnes to 1.16 million tonnes.
The CPI inflation receded to single digit, lowest in 34 months in August 2024, recorded at 9.6 per cent on year-on-year basis compared to 27.4 per cent in the same month last year. On MoM basis, it increased by 0.4 per cent in August 2024 compared to an increase of 2.1 per cent in the previous month and an increase of 1.7 per cent in August 2023.
Major drivers contributing to the YoY increase in CPI include perishable food items (41.0 per cent), housing, water, electricity, gas and fuels (22.2 per cent), health (17.8 per cent), clothing and footwear (17.3 per cent), transport (3.2 per cent), while non-perishable food items declined by 2.6 per cent. The SPI for the week ended on 19 September 2024, recorded a decrease of 0.52 per cent as compared to previous week. This week, prices of 15 items declined, 19 items remained stable and 17 items increased.
In July FY2025, the net federal revenues grew by 7.2 per cent to Rs408.4 billion from Rs380.9 billion last year. The growth in revenues has been realised on the back of 22.6 per cent increase in tax collection and 20.5 per cent rise in non-tax collection.
The main contributor of non-tax revenues was the petroleum levy which surged to Rs83.6 billion. Total expenditures grew by 19.2 per cent to Rs768.6 billion in July FY2025 against Rs644.9 billion last year.
Consequently, the fiscal deficit recorded at 0.3 per cent of GDP as against 0.2 per cent of GDP in the same month of last year. Primary balance managed to post a surplus of 0.1 per cent of GDP compared to 0.3 per cent of GDP last year.
During Jul-Aug FY2025, the FBR net tax collection grew by 20.6 per cent to Rs1,456 billion as compared to Rs1,207.5 billion same period last year. In August 2024, the FBR collected 19.0 per cent more taxes to reach Rs796 billion from Rs669 billion last year.
During Jul-Aug FY2025, the current account registered a deficit of $0.2 billion compared to $0.9 billion last year however, it recorded a surplus of $75 million in August 2024. During Jul-Aug FY2025, goods exports increased by 7.2 per cent, reaching $4.9 billion, while imports stood at $9.5 billion, compared to $8.4 billion last year leading to a trade deficit of $4.7 billion.
The Foreign Direct Investment (FDI) stood at $350 million, 55.5 per cent up from the previous year. The main contributors to this growth were China ($175 million), Hong Kong ($70 million), and the UK ($43.5 million).
Private sector Foreign Portfolio Investment (FPI) had a net inflow of $ 24 million, while Public FPI recorded a net inflow of $78.2 million.
Workers’ remittances increased by 44 per cent reaching $5.9 billion, with the largest share from Saudi Arabia (25 per cent). Pakistan’s total liquid foreign exchange reserves were recorded at $14.9 billion on Sep 20, 2024, with the State Bank of Pakistan’s reserves at $9.5 billion.
During 1st July–30th August FY2025, money supply (M2) shows negative growth of 2.6 per cent (Rs -962.3 billion) compared to negative growth of 1.4 per cent (Rs -449.5 billion) last year.
Credit to private sector (flows) stood at Rs -376.4 billion, 1-July to 6 -September 2024-25 against Rs -282.3 billion (1-July to 8-Spetmber) 2023-24.
Copyright Business Recorder, 2024
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