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Signs of economic stability are more evident: Economic Update & outlook

ISLAMABAD: As we approach the end of the outgoing fiscal year, signs of economic stability are becoming more evident. GDP growth is on the recovery path, while inflation continues its steady decline. Fiscal consolidation efforts are apparent from the positive primary balance, and the resilience of the external sector is evident from the positive current account balance. Despite the challenging situation during the past ten months, the government completed the IMF Stand-By Arrangement (SBA) program.

To sustain the economic recovery, the government has initiated formal discussions for a new three-year IMF program. This initiative is a vital component of the stabilization strategy, aimed at strengthening the external sector and boosting investment flows, thus, steering the economy toward its potential growth. The Finance Division has mentioned these positive developments in its latest monthly report, Economic Update & Outlook, May 2024, released on May 29.

Agriculture emerged as a main driver of economic growth in the current fiscal year, registering a growth of 6.25 percent. The agriculture sector’s recovery is mainly attributed to government initiatives through improved input supply and increased credit disbursement to farmers. Jul-Apr FY2024, the input situation remained encouraging as farm tractor production and sales increased by 54.8 and 56.6 percent, respectively.

Whereas a 33.8 percent surge was observed in agricultural credit disbursement during Jul-March FY2024. However, there was a mixed trend in fertilizer usage in April 2024, with Urea off-take decreasing by 19.7 percent and DAP off-take increasing by 82.5 percent. Large Scale Manufacturing (LSM) growth in 2024Q3, became positive and is expected to remain moderately positive on average throughout the second half of the current FY. It witnessed a minor decline of 0.1 percent during Jul-Mar FY 2024 against the contraction of 7.0 percent same period last year. During this period, 11 to 22 sectors witnessed positive growth.

The CPI inflation stood at 17.3 percent on a year-on-year basis in April 2024 as compared to 36.4 percent in April 2023. The major drivers include Housing, water, electricity, gas & fuel, Perishable food items, Furnishing & Household equipment maintenance, Clothing & Footwear, and Transport.

On the fiscal front, during July – March FY24, the revenue growth outpaced the growth in expenditures. Within revenues, both tax and non-tax collection grew significantly by 29.3 percent and 90.7 percent, respectively. Moreover, measures to control non-mark-up spending helped in improving the primary surplus to Rs 1615.4 billion (1.5 percent of GDP) from Rs 503.8 billion (0.6 percent of GDP) last year. While, overall fiscal deficit remained at 3.7 percent of GDP, the same as recorded last year. On the external front, the current account for FY2024 (July-April) narrowed down significantly, recording a deficit of $0.2 billion compared to last year’s $3.9 billion, primarily due to an improved trade balance.

In April 2024, the current account surplus was recorded at $491 million, an increase from $434 million in March 2024. Year-on-year, exports in April 2024 increased by 23.4 percent to $2.6 billion, fueled by eased import restrictions that enhanced the supply chain for export industries. In the same period, imports also rose by 22.8 percent to $4.4 billion. The trade deficit for April 2024 was recorded at $1.8 billion. Furthermore, the FDI witnessed an increase of 39.1 percent and reached $358.8 million in April 2024, as against an inflow of $ 258.0 million last month.

Remittances in April 2024 were encouraging, as they increased on a year-on-year basis by 27.9% to $ 2.8 billion. On the back of a persistent policy rate at 22 percent, during 1st July – 03rd May, FY2024 money supply (M2) shows growth of 7.1 percent (Rs 2,229.8 billion) as compared to a 7.0 percent growth (Rs 1,943.4 billion) in last year. Although the signs of a moderate economic recovery are evident. But to sustain this positive momentum, the policy efforts and reforms to raise productivity, and competitiveness are imperative.

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I am an experienced writer, analyst, and author. My exposure in English journalism spans more than 28 years. In the past, I have been working with daily The Muslim (Lahore Bureau), daily Business Recorder (Lahore/Islamabad Bureaus), Daily Times, Islamabad, daily The Nation (Lahore and Karachi). With daily The Nation, I have served as Resident Editor, Karachi. Since 2009, I have been working as a Freelance Writer/Editor for American organizations.

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