Uptick in inflation, water stress for crops likely

ISLAMABAD: The Finance Division has warned that there are prospects of a slight increase in inflation, ie, to 3.0 – 4.0 percent by March 2025, besides, the relatively dry conditions may cause water stress for Rabi crops, especially wheat in rain-fed areas.

The Division in its “monthly economic update and outlook February 2025” noted that inflation is anticipated to remain within the range of 2.0-3.0 percent for February 2025.

The outlook noted that on a year-on-year (YoY) basis, Large Scale Manufacturing (LSM) sector’s growth declined by 3.7 percent compared to 3.1 percent growth last year. During July-December fiscal year 2025, LSM posted a decline of 1.9 percent, compared to a contraction of 1 percent in the corresponding period of fiscal year 2024.

Pakistan inflation expected to clock in at 2.0-2.5% in February, says brokerage house

LSM exhibited month-on-month (MoM) recovery, growing by 19.1 percent in December 2024 compared to November 2024.

The report did not include information about public sector development program (PSDP) releases. Credit flow to private sector registered Rs742.1 billion during July 1 to February 14 2024-25 against Rs246.8 billion in the comparable period of last year.

Pakistan’s economy continued to demonstrate positive developments during July-January fiscal year 2025, as evidenced by improvements in key economic indicators, the outlook noted.

Export-oriented industries grew despite the slow recovery in the LSM sector. The steep decline in inflation fostered a stable financial environment, enabling the central bank to steadily reduce the policy rate. Investors’ confidence is evident in the convincing performance of the PSX.

‘Country may face water scarcity by 2025’

Higher growth in remittances and FDI further strengthened sentiments of the economic agents. These factors collectively indicate positive prospects for economic growth in coming months.

During July-January fiscal year 2025, the current account posted a surplus of $682 million compared to a deficit of $1,801 million last year. However, in January 2025, the current account recorded a deficit of $420 million, compared to a deficit of $404 million in January 2024.

For the Rabi season 2024-25, wheat has been sown on 22.07 million acres, with an expected production of 27.9 million tonnes.

The utilization of farm inputs is progressing effectively, supported by government initiatives to enhance agricultural productivity through the provision of improved seeds, agricultural credit, farm machinery, and fertilizers.

During July-November fiscal year 2025, agricultural credit disbursement rose to Rs 925.7 billion, an 8.5 percent increase from Rs 853.0 billion in the same period last year, supporting the annual target of Rs 2,572.3 billion.

Agricultural machinery & implements imports increased by 42.5 percent to $69.2 million in July-January fiscal year 2025 compared to same period last year demonstrating a growing focus on mechanization. Urea offtake during Rabi 2024-25 (October-January) recorded at 2,449 thousand tonnes (6 percent higher than Rabi 2023- 24) whereas DAP offtake was 758 thousand tonnes (17.7 percent higher than Rabi 2023-24).

Consumer Price Index (CPI) inflation recorded at 2.4 percent on a YoY basis in January 2025 as compared to 4.1 percent in the previous month and 28.3 percent in January 2024. On MoM basis, it slightly increased by 0.2 percent in January 2025 compared to an increase of 0.1 percent in the previous month and an increase of 1.8 percent in January 2024.

During July-December fiscal year 2025, total revenues grew by 42.5 percent to Rs 9,763.8 billion against Rs 6,854.0 billion last year. Both tax and non-tax collection contributed to this rise.

Non-tax collection grew significantly by 83.0 percent on the back of higher receipts mainly from Dividends, Pakistan Telecommunication Authority (PTA) profit, State Bank of Pakistan (SBP) profit, Natural Gas Development Surcharge and Petroleum levy. While tax collection increased by 25.5 percent.

During July-January fiscal year 2025, FBR tax collection posted a growth of 26.2 percent to reach Rs 6,497.4 billion from Rs 5,149.6 billion last year. Total expenditure increased by 22.0 percent to Rs 11,301.7 billion in July-December fiscal year 2025 from Rs 9261.8 billion last year.

Current expenditure witnessed 18.1 percent growth, mainly due to higher markup payments relative to non-markup spending. However, the pace of growth in markup payments moderated compared to July-December fiscal year 2024, due to a continuous decline in the policy rate. Thus, a substantial increase in revenue compared to expenditures improved the fiscal accounts during July-December fiscal year 2025.

The fiscal deficit reduced to 1.2 percent of GDP (Rs.1,537.9 billion) from 2.3 percent of GDP (Rs.2,407.8 billion) last year. Furthermore, the primary surplus improved owing to contained non-markup spending and reached Rs.3,603.7 billion (2.9 percent of GDP) from Rs.1,812.2 billion (1.7 percent of GDP) last year.

The external sector position has significantly improved, driven by continued increase in exports and workers’ remittances despite an upward trend in imports.

During July-January fiscal year 2025, exports of goods increased by 7.6 percent, reaching $19.2 billion compared to $17.8 billion last year, while imports of goods recorded at $33.3 billion against $30.0 billion last year (10.9 percent increase). This has resulted in trade deficit (goods) of $14.1 billion, as compared to $12.2 billion last year.

Service exports grew to $4.7 billion (6.2 percent) and imports to $6.7 billion (9.1 percent), resulting in a services trade deficit of $1.9 billion against $1.6 billion last year. IT exports grew by 26.5 percent to $2.2 billion ($1.7 billion last year).

Workers’ remittances recorded robust inflows of $20.8 billion during July-January fiscal year 2025, marking a 31.7 percent increase over $15.8 billion last year with largest share from Saudi Arabia (24.7 percent) followed by UAE (20.2 percent).

Foreign Direct Investment (FDI) net inflows were recorded at $1,523.6 million, 56.2 percent higher than the previous year. The largest share of net inflows came from China $633.6 million (41.6 percent), followed by Hong Kong $154.7 million (10.2%), and the UK $148.2 million (9.7 percent).

Private sector foreign portfolio investment (FPI) had a net outflow of $232 million, while public FPI recorded a net inflow of $55 million. Pakistan’s total liquid foreign exchange reserves were recorded at $15.9 billion on February 14, 2025, with the State Bank of Pakistan’s reserves at $11.2 billion.

In January 2025, the Monetary Policy Committee (MPC) decided to further cut the policy rate by 100 bps to 12 percent, effective from January 28, 2025. Cumulative, policy rate has reduced by 1000 bps since June 2024. The decision is based on inflation outcome in line with expectations, supported by moderate domestic demand conditions and supportive supply-side dynamics.

During 1st July – 31st January, fiscal year 2025 money supply (M2) showed negative growth of 0.5 percent (Rs. -172.5 billion) as compared growth of 2.2 percent (Rs. 689.6 billion) last year.

Within M2, Net Foreign Assets (NFA) increased by Rs 712.8 billion as compared to an increase of Rs410.2 billion last year. Whereas, Net Domestic Assets (NDA) of the banking sector decreased by Rs. 885.3 billion against an increase of Rs. 279.4 billion last year.

Under the borrowing for budgetary support, government has retired Rs. 1074.7 billion against the borrowing of Rs. 2850.2 billion last year. Private Sector borrowing increased to Rs. 958.1 billion against the borrowing of Rs. 239.3 billion last year.

In January2025, the KSE-100 remained upbeat but volatile and closed at 114,256 points as on 31st January 2025. The market capitalization of Pakistan Stock Exchange closed at Rs 14,054 billion at month end.

In January 2025, the Bureau of Emigration & Overseas Employment registered 63,559 workers for employment, compared to 60,694 in January 2024.

The Pakistan Poverty Alleviation Fund, in collaboration with its 24 partner organizations, distributed 20,573 interest-free loans amounting to Rs 979 million in January 2025.

Since the inception of the program in 2019, a total of 2,937,625 interest-free loans amounting to Rs 113.3 billion have been disbursed.

During July-December fiscal year 2025, Rs. 232.2 billion has been spent under the Benazir Income Support Programme, against the budgetary allocation of Rs 592.5 billion for fiscal year 2025, showing an increase of 26.4 percent against last year.

Copyright Business Recorder, 2025