ISLAMABAD: Economic instability is fading, with revival efforts aimed at boosting activity across sectors. The real sector is experiencing notable growth, leading to a positive market response and signs of recovery. The PKR has stabilized and the PSX has shown sustained performance improvements, reflecting a conducive environment for economic activity. Though the pace of overall expansion is slow, improvements in major economic indicators signify an optimistic GDP outlook in FY2024.
The agriculture sector is experiencing stronger growth as compared to last year. The robust performance in this sector reflects the better situation of food security and employment during the ongoing fiscal year. For the Rabi season 2023-24, the timely sowing of wheat aligns to reach a production target of 32.12 million tonnes, with expectations for further increase in other crops’ production due to favorable climatic conditions.
The Finance Division has mentioned this in its Monthly Economic Update & Outlook for February 2024, released on Thursday afternoon.
According to the document, the farm tractor production and sales registered a significant increase of 76.7 percent and 82.5 percent during July-January FY2024, respectively, compared to the same period last year. A mixed trend was witnessed in fertilizer usage, urea off-take dropped by 6.7 percent during October-January whereas DAP off-take rose by 14.5 percent during the same period. The LSM sector showcased an increase of 3.4 percent on a YoY basis in December 2023, compared to a 1.1 percent decline.
During Jul-Dec FY2024, 12 out of 22 sectors witnessed positive growth. The positive sectors include Food, Beverages, Wearing Apparel, Leather Products, Coke & Petroleum Products, Chemicals, Pharmaceuticals, Non-Metallic Mineral Products, Rubber Products, Wood Products, Machinery and Equipment and others (including Football), while negative growth observed in Tobacco, Textile, Paper & Board, Iron & Steel Products, Fabricated Metal, Computer, Electronics & Optical Products, Automobiles, Electrical Equipment, Furniture and Other Transport Equipment. The inflationary pressure remained sustained in January, though anticipated to fall in the coming months.
In January 2024, the CPI inflation was recorded at 28.3 percent on a year-on-year basis, up from 27.6 percent in January 2023. During Jul-Jan FY2024, it has increased to 28.7 percent, compared to 25.4 percent in the corresponding period last year. The spike in CPI is mainly driven by an increase in the costs of Alcoholic Beverages & Tobacco, Housing, Water, Electricity, Gas & Fuel, Furnishing & Household Equipment Maintenance, Perishable Food Items, Non-Perishable Food Items, Transport, Health, and Clothing & Footwear.
The expenditure side remained under significant pressure due to higher markup payments. Consequently, the fiscal deficit reached 2.3 percent of GDP compared to 2.0 percent of GDP last year. The primary surplus improved to 1.7 percent of GDP during Jul-Dec FY2024, up from the 1.1 percent of GDP in the previous year. On the external front, a sustained improvement in the trade balance is continued, leading to improvement in the Current Account Balance. During Jul-Jan FY2024, the Current Account posted a deficit of $1.1 billion against a deficit of $ 3.8 billion last year. The YoY exports increased by 21.2 percent to $ 2.7 billion in January 2024 as compared to $ 2.2 billion in January 2023, owing to ease in import restrictions and exchange rate stability resulting in smooth supply of raw material for export-oriented industries. YoY imports increased by 16.0 percent to $4.5 billion in January 2024 as compared to $ 3.9 billion the same month last year.
Trade balance narrowed down by 9.1 percent to $ 1.8 billion in January 2024 as against $ 1.7 billion last year. The total foreign investment during Jul-Jan FY2024 recorded an inflow of $ 785.9 million as against an outflow of $ 148.8 million last year. During Jul-Jan FY2024, workers’ remittances recorded at $ 15.8 billion ($ 16.3 billion last year), decreased by 3.0 percent. However, YoY remittances increased by 26.2 percent in January 2024 ($ 2.39 billion) as compared to January 2023 ($ 1.90 billion) In the monetary sector, the MPC has maintained the policy rate at 22.0 percent in its decision held on 29 January 2024. The decision is based on the expectation of a decline in inflation in the upcoming months.
During 1 July – 2 February, FY2024 money supply (M2) showed growth of 2.5 percent (Rs 792.3 billion) compared to 1.5 percent growth (Rs 426.1 billion) last year. The first seven months indicate an uptick in the key economic indicators. It is expected that the economic activities will gain further momentum in the last quarter of FY2024. The positive outlook is contingent on the sustained implementation of sound and prudent economic policies to achieve the set growth targets for the current fiscal year.
