ISLAMABAD  -  The Ministry of Finance has noted that Pakistan’s economy is on a gradual but promising path to recovery, as the inflationary pressures are receding and the outlook has improved while inflation is expected to decline over the coming months amid receding supply constraints and modest demand.

“The stride of economic revival initiatives is driving a surge in economic activity. Positive economic signals and recovery indicators have triggered the market sentiment, propelling the KSE-100 index of PSX by 33% in November, surpassing the 58199-point mark for the first time in history. The sustained monetary policy stance and successful IMF staff review in November drove the market confidence,” the ministry stated in its, ‘Monthly Update & Outlook November 2023.

Owing to the reforms in exchange companies and a reduction in illicit transactions, the exchange rate remains stable thus exerting a positive impact on overall economic activity. The Large-Scale Manufacturing (LSM) sector demonstrated a positive trend for the second consecutive month while posting a growth of 1.0 percent in September 2023. After several months of decline, the industry has been on the path of recovery since August 2023. The stability in the exchange rate, ease in supply disruptions due to the removal of import restrictions, and improved dollar liquidity contributed to this economic upswing. In the agriculture sector, the input situation shows positive signs. The farm tractor production and sales witnessed growth of 55.1 percent (17,098) and 86.8 percent (17,296), respectively during Jul-Oct FY2024 over the corresponding period last year. During October 2023 the 6.8 percent growth in urea and 122 percent in DAP off take compared to October 2022, indicating a positive growth in Rabi crops.

The ministry said that keeping in consideration, the crop cycle of perishables, the supply pressures are expected to be relieved by end November onwards. Moreover, the reduction of fuel prices by the government would help further easing out inflationary pressures. In view of the above, inflation is anticipated to remain low and expected to remain around 26.5-27.5 percent in November 2023 and further ease out to 25.5-26.5 percent in December 2023.

“There is an uptick in farm input utilization and a better price of wheat will augur well in achieving the production target of wheat given favourable weather conditions,” the report stated. The fiscal performance in Q1-FY 2024 reflects a positive trajectory, characterized by a notable surge in total revenues relative to expenditures. As a result, the fiscal deficit reduced from 1.0 percent of GDP recorded in Jul-Sep FY2023 to 0.9 percent of GDP during the current period. The surplus in the primary balance has improved, attributed to the restricted growth in non-markup expenditures. Similarly, the pace of growth in FBR tax collection remained robust sustained by various tax policy and administrative initiatives. Encouragingly, this marks the 4 consecutive month in which FBR achieved the revenue collection target. Despite better fiscal accounts during the first quarter of the current fiscal year, higher mark-up payments may put significant pressure on the expenditure side. However, it is expected that effective fiscal management through robust growth in revenues and a cautious expenditure approach will navigate potential challenges and maintain positive momentum in the fiscal sector.

According to the BOP data, October imports of goods and services were at $5.2 billion, higher than $4.8 billion in September and marginally lower than the $5.4 billion in October 2023. The soothed international oil prices, stable exchange rate in October somewhat offset by expansion in economic activities, contributed to an increase in imports. Given these recent dynamics and under unchanged policy assumptions, imports would remain at around the current observed levels in the coming months. Exports of goods reached $2.8 billion, the highest value observed after June 2022. As a result, export of goods and services posted significant growth of 10.5 and 17.8 percent on MoM and YoY basis, respectively.