Amid growing optimism about achieving single-digit inflation rates, the Ministry of Finance has projected that inflation for July will hover around 12% to 13%.
The outlook suggests a further easing in August, with inflation expected to range between 11% and 12%. This forecast was detailed in the Ministry’s Monthly Economic Update and Outlook, released on Tuesday.
The report highlights that the economy has been moving towards stability for the fiscal year 2024.
Notable improvements include decreasing inflation, a surplus in the primary fiscal account from July to May, a negligible current account deficit, and a stable exchange rate. The Ministry’s positive outlook reflects these economic advancements.
Inflation figures for July, which are closely monitored by the central bank, are set to be released by the Pakistan Bureau of Statistics (PBS) on Thursday.
This follows a recent decision by the State Bank of Pakistan (SBP) to cut interest rates for the second consecutive time. On Monday, the SBP reduced the interest rate by 1% or 100 basis points (bps), from 20.5% to 19.5%.
This rate cut aligns with market expectations and reflects a slight cooling in inflation rates. SBP Governor Jameel Ahmad, speaking after the Monetary Policy Committee (MPC) meeting, noted that inflation appears to be on a declining trend.
The report also points out improvements in the real sector. Agriculture has shown strong performance, and large-scale manufacturing (LSM) is poised for growth. During the period from July to May FY2024, LSM expanded by 1.0%, reversing last year’s contraction of 9.6%.
Specifically, in May 2024, LSM exhibited a year-on-year growth of 7.3% and a month-on-month increase of 7.5%, driven by robust performances in sectors such as food, apparel, leather, coke and petroleum products, chemicals, pharmaceuticals, and machinery and equipment.
June 2024 saw consumer price index (CPI) inflation nearing the single-digit range, according to the report. Additionally, the external account position has improved, attributed to controlled imports, increased exports, and rising remittances.
The fiscal deficit was reduced to 4.9% of GDP between July 2023 and May 2024, down from 5.5% in the previous year.
To further bolster economic stability, the government has recently reached a staff-level agreement with the International Monetary Fund (IMF) on a 37-month Extended Fund Facility Arrangement (EFF) worth $7 billion.
This loan program involves stringent measures, including higher taxes on farm incomes and increased electricity prices. While the agreement aims to stabilize the economy, it has sparked concerns among poor and middle-class Pakistanis who fear further inflation and tax burdens.
Inflation has notably slowed in recent months after exceeding 30% in 2023. In June 2024, the CPI rose by 12.6%, compared to 11.8% in the previous month and 29.4% in June 2023.
However, despite these improvements, pressure on the government persists. Recent protests and threats of sit-ins in major cities have emerged from parties demanding more effective measures to combat rising prices.
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