ISLAMABAD    -   The ministry of finance has noted that fiscal year (FY2024) is going to end with an economic stabilization path accompanied by improved macroeconomic indicators. “The subsiding inflationary pressures, stability in external accounts and exchange rate, fiscal consolidation and gradual recovery in industrial activities are restoring the confidence of economic agents thus facilitating economic growth,” the ministry has stated in its monthly report for June 2024. Going forward, Pakistan’s growth prospects are expected to remain encouraging. Budget FY2025 is gearing towards a shift to an era of sustainable and inclusive growth. Aiming to this, the government is focusing on high potential sectors like IT, SMEs, mines and minerals, tourism, exports and agriculture. These sectors can pay rich dividends and lend support to the country’s balance of payments position.

Complementing this, fiscal discipline, effective implementation of home-grown growth program along with bilateral and multilateral cooperation will necessitate the sustainable potential growth path in coming years. The inflation outlook for June 2024 has slightly increased compared to the previous month but remains well below the levels of the same month last year. This rise is primarily due to higher prices of perishable items driven by Eid ul Azha. In response, the government is implementing various administrative, policy, and relief measures to control inflationary pressures. Notably, the government reduced petrol prices by Rs4.74 per litre and diesel by Rs3.86 per litre on June 1, with further reductions of Rs10.20 per litre for petrol and Rs2.33 per litre for diesel effective from June 15. These actions, coupled with efforts to boost the availability of food items, reflect the government’s commitment to curbing inflation. By managing supply and demand, the government aims to stabilize prices and mitigate market volatility, presenting a more optimistic inflation outlook.

Despite higher prices of perishable items during the month, government measures to reduce transport charges are expected to keep June 2024 inflation within the range of 12.5-13.5 percent. According to PMD’s ‘Seasonal Agro-Climate Outlook for June – August 2024’, farmers are advised to take measures based on recent extreme heat wave events, the amount of soil moisture available is currently under stress in most parts of the country. Accordingly, seasonal crops like cotton, peanut, sugarcane, seasonal vegetables and orchards are under water stress and require additional irrigation in most parts of the country. In May 2024, the current account showed deviation from its trend observed in previous months – deficit of $ 270 million. Imports of goods and services increased significantly by 25.3 and 12.2 percent on YoY and MoM basis, respectively. Similarly, exports of goods and services posted an expansion of 15.4 and 12.7 percent on YoY and MoM basis, respectively. Resultantly, strong expansion in imports has diluted the export growth – the trade deficit increased by 45.9 and 11.4 percent on YoY and MoM basis, respectively. Another factor that causes the current account deficit is primary income debit of $ 1.5 billion ($ 646 million in April 2024). On the other hand, workers remittances increased by 15.3 percent on MoM basis - contributed significantly and saving the current account from a large deficit. It is expected that current account will end within sustainable limits.

During Jul-Apr FY2024, the fiscal accounts improved on the back of consolidation efforts that helped in increasing the revenues from both tax and non-tax collection. In contrast, higher interest payments exerted significant pressure on expenditure management. To cope with the challenge of rising expenditures, the government adopted a cautious expenditures management strategy to release both current and development spending. These measures helped in improving the primary balance surplus to 1.5 percent of GDP which is well above the target of 0.4 percent of GDP. Similarly, the fiscal deficit has also been contained to 4.5 percent of GDP. Going forward, on the revenue side, FBR is putting all its efforts into meeting its full-year tax revenue target, while on the expenditure side, the government continues to adhere to a cautious approach to keep the fiscal deficit within manageable limits.