Govt sees inflation slowing down to 27%

The government on Wednesday said the pace of inflation would slow down to 27% this month but linked achieving the new fiscal year’s targeted growth of 3.5% with political and economic certainty.

The inflation for the month of July 2023 is expected to remain in the range of 25% and 27%, the finance ministry reported in its first monthly economic outlook for the fiscal year 2023-24.

It added that inflation in July 2023 was expected to reduce in comparison with its previous month when it had been recorded at over 29%.

The document read that the recent decrease in the administered prices of petrol and diesel would be transmitted into lower domestic prices of essential items by impacting the transportation cost.

The finance ministry’s forecast is in line with independent assessments.

According to KASB Research, inflation is estimated to register at 26.8% in July against 29.4% recorded in the preceding month.

However, it noted that on a monthly basis, the inflation index was estimated to rise by 2.2% because of higher food prices.

KASB Research continued that although the inflation rate was slowing down, the steps that Pakistan had taken, including increased taxation and higher energy tariffs, would keep it on a higher trajectory.

The finance ministry also maintained that the declining international commodity prices were expected to offset the inflation spikes that emerged because of the domestic supply shocks.

The benchmark index of international food commodity prices declined again in June 2023 – led by a decrease in the rates of major cereals and most types of vegetable oils.

The ministry hoped that the government would achieve the current fiscal year’s economic growth target of 3.5%.

However, it added that to achieve a higher and sustainable growth, it would require prudent and effective economic decisions as well as political and financial certainty.

The ministry noted that the continuation of friendly economic policies along with enough foreign exchange financing would also be needed to accomplish the goal.
According to the ministry, in FY2024, the government is gearing towards achieving a higher growth of 3.5% through various measures, including the Kissan package, industrial support, export promotion, encouragement of the information technology sector and resource mobilisation.

The government’s term is going to end before the middle of the next month and there will be a caretaker set-up in the country for two to three months.

The International Monetary Fund (IMF) has projected the economic growth of the country at 2.5% in the ongoing fiscal year because of the prevailing financial conditions.

The Washington-based lender has also not accepted Pakistan’s claim of a nominal GDP growth rate of 0.3% in the last fiscal year.

It stated in its recent report that Pakistan’s growth contracted by 0.5%.
The finance ministry said the recent IMF approval of the stand-by arrangement as well as other bilateral and multilateral inflows would pave the way to further improve the macroeconomic environment and the confidence of economic agents.

The ministry added that it was expected that both exports and imports would gradually increase in the coming months.

It continued that taking other factors into account, the current account deficit would remain at a sustainable limit in FY2024.

The finance ministry said the State Bank of Pakistan’s (SBP) withdrawal of restrictions on imports would create a demand for them.

It maintained that all these measures would be supportive in improving the revenues.

On the expenditure side, it added that various austerity measures were in place that would be helpful in reducing non-productive expenditures.

The ministry said global export markets were indicating that economies were going towards a revival phase although they were still below their potential.

It continued that the only exception was China, which had successfully entered the phase of expansion.

In the case of Pakistan, the large-scale manufacturing sector was expected to be profitable in June.

However, the finance ministry said on a yearly basis, the large-scale manufacturing sector would remain significantly negative in June 2023 because of the high base effect.

In the agricultural sector, the ministry stated that the input situation was expected to remain favourable during the period except for weather conditions.