ISLAMABAD: The Finance Division has warned that the year on year (YoY) decline in Large Scale Manufacturing (LSM) highlights underlying weaknesses that may continue to weigh on industrial performance, besides favorable weather remains a key factor in ensuring better harvests to meet production targets.
The monthly economic update and outlook March 2025 noted that an upturn in food and energy prices may lead to an increase in inflation in coming months.
Inflation is anticipated to remain within the range of 1.0-1.5 percent for March 2025 and inching up to 2.0-3.0 percent in April 2025.
5MFY25: LSM sector sees 1.25pc contraction YoY
The Outlook noted that month on month (MoM) basis, LSM growth edged up by 2.1 percent, signaling a mild improvement from December 2024. However, on YoY basis, LSM contracted by 1.2 percent, compared to 1.1 percent growth last year. During July-January fiscal year 2025, LSM posted a decline of 1.8 percent, compared to a contraction of 0.6 percent last year.
The report did not include information about public sector development program (PSDP) releases. Credit flow to private sector registered Rs563.4 billion during July 1 to March 7, fiscal year 2025 against Rs155.1 billion in the comparable period of last year. Finance Division claimed that the economy demonstrated resilience and stability on fiscal and external fronts.
Inflationary pressures have eased, supported by declining food and energy prices, fostering overall price stability.
Fiscal consolidation measures are yielding tangible results, leading to a primary surplus and a narrowed fiscal deficit. The external sector remains robust, with a current account surplus, export growth, strong remittance inflows, and rising foreign investment.
Investors’ confidence continues to strengthen, as reflected in the bullish performance of the Pakistan Stock Exchange. These positive developments lay the foundation for sustained growth and moderate inflation in the coming months of the fiscal year, it added.
The fiscal deficit reduced to 1.7 percent of GDP in July-January fiscal year 2025 from 2.6 percent last year. Primary surplus increased to Rs3,518.7 billion (2.8 percent of GDP), against a surplus of Rs.1,938.8 billion (1.8 percent of GDP) last year.
The net federal revenues grew by 45.3 percent to Rs6,362.5 billion during July-January fiscal year 2025 from Rs.4,379.5 billion last year. This substantial growth is attributed to both tax and non-tax collection. Particularly, the receipts from non-tax collection grew sharply by 75.8 percent.
During July-February fiscal year 2025, Federal Board of Revenue tax collection increased by 25.9 percent to Rs 7,343.9 billion from Rs5,831.3 billion last year. Within total collection, revenues from domestic taxes grew by 27.4 percent, while customs duty increased by 15.4 percent.
On the expenditure side, total expenditure increased by 23.9 percent to Rs. 9,330.1 billion during July-January fiscal year 2025 as compared to Rs7,531.5 billion last year. Current expenditure rose by 16.8 percent to Rs. 8,596.7 billion against Rs. 7,358.6 billion last year. Within current expenditure, markup payments grew by 20 percent while non-markup increased by 11.4 percent.
The contained growth in non-markup spending is largely attributed to the significant decline in expenditure on subsidies. Expenditure for PSDP grew by 27.2 percent during the period under review.
During July-February fiscal year 2025, the current account posted a surplus of $691 million compared to deficit of $1,730 million last year. However, in February 2025, the current account recorded a deficit of $12 million, compared to a surplus of $71 million in February 2024.
For the Rabi season 2024-25, wheat production is targeted to reach 27.9 million tonnes. During Rabi 2024-25 (October-February) fertilizers offtake showed a mixed trend; DAP offtake increased by 3.8 percent, reaching 798 thousand tonnes while Urea offtake stood at 2,796 thousand tonnes with a slight decline of 2.0 percent compared to Rabi 2023-24.
During July-February fiscal year 2025, goods exports increased by 7.2 percent to $21.8 billion compared to $20.4 billion last year, while imports recorded an increase of 11.4 percent to reach $38.3 billion. This has resulted in $16.5 billion deficit on trade in goods as compared to $14.1 billion last year.
The service exports grew to $5.5 billion (up by 6 percent) and imports to $7.7 billion (up by 12 percent), resulting in a service trade deficit of $2.3 billion higher than $1.7 billion last year.
On the external front, exports, imports, and workers’ remittances are expected to maintain their upward trend. In the coming months, remittances are likely to increase further due to the seasonal factors of Ramzan and Eids.
Exports and imports are expected to improve owing to the expansion in economic activity. Collectively, these factors will help to keep the current account within manageable limits.
Workers’ remittances recorded an impressive growth of 32.5 percent, with a robust inflow of $24 billion during July-February fiscal year 2025 compared to $18.1 billion last year–with the largest share from Saudi Arabia (24.6 percent) followed by UAE (20.3 percent).
Net Foreign Direct Investment (FDI) was recorded at $1,618.4 million, 41.0 percent higher than the previous year.
The largest share (40.9 percent) is from China $661.8 million, UK $167 million (10.3 percent) and Hong Kong $160.4 million (9.9 percent). The power sector received net FDI of $578.2 million (35.7 percent share), followed by financial business with $466.4million (28.8 percent) and oil & gas exploration with $196.6 million (12.1 percent).
Private sector Foreign Portfolio Investment (FPI) had a net outflow of $253.6 million, while public FPI recorded a net inflow of $42.6 million. Pakistan’s total liquid foreign exchange reserves were recorded at $16.0 billion on 14thMarch 2025, with the State Bank of Pakistan’s reserves at $11.1 billion.
The Monetary Policy Committee (MPC) decided to keep the policy rate unchanged at 12 percent in its meeting held on March 10, 2025 – after 1000 bps cut in policy rate since June 2024. The decision is based on core inflation which is more persistent at an elevated level and thus an upturn in food and energy prices may lead to an increase in inflation in coming months.
Furthermore, the committee also considered risk of pressures on external account which may emerge due to rising imports.
During 1st July - 28th February, fiscal year 2025 money supply (M2) shows negative growth of 0.4 percent (Rs -125.4 billion) as compared growth of 3.7 percent (Rs. 1,152.7 billion) in last year.
Within M2, Net Foreign Assets (NFA) increased by Rs. 771.2 billion as compared to an increase of Rs. 545.2 billion last year. Whereas Net Domestic Assets (NDA) of the banking sector decreased by Rs. 896.6 billion as compared to an increase of Rs. 607.5 billion previous year.
Under the borrowing for budgetary support, the government has borrowed Rs. 22.3 billion against the borrowing of Rs. 3,369.6 billion last year. Private Sector has borrowed Rs. 573.6 billion as compared to Rs. 277.5 billion previous year.
In February 2025, the KSE-100 index remained volatile and closed at 113,252 points as on 28th February 2025. The market capitalization of Pakistan Stock Exchange closed at Rs 13,981 billion at month end.
In February 2025, Bureau of Emigration & Overseas Employment registered 50,030 workers for employment, compared to 53,642 in February 2024. The Pakistan Poverty Alleviation Fund, in collaboration with its 24 partner organizations, distributed 21,396 interest-free loans amounting to Rs. 1.0 billion. Since the inception of the program in 2019, a total of 2.95 million interest-free loans amounting to Rs. 114.85 billion have been disbursed.
The government has also allocated Rs. 20 billion for the Ramzan Package to benefit 4 million households. Under this package, Rs. 5,000 is being provided per household through a digital wallet.
During July-January fiscal year 2025, Rs. 241.0 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 30.6 percent against last year.
Copyright Business Recorder, 2025
Comments