Pakistan’s headline inflation is expected to ease further over the next two months, hovering between 8-9%, the Finance Division announced on Friday, projecting a steady recovery. In its “Monthly Economic Update and Outlook,” the ministry reported that the Consumer Price Index (CPI) fell to a 34-month low in August 2024 and is likely to continue declining in the near term.
The August inflation rate stood at 9.6% year-on-year, a sharp drop from 27.4% during the same period last year. The ministry also highlighted that Pakistan’s economy showed signs of recovery in the first two months of fiscal year 2025.
The report cited positive trends, noting, “Inflation has dropped to single digits, industrial output is strengthening, and key export sectors are growing, indicating a promising export outlook.” It also noted a contraction in the current account deficit (CAD) and resilience in the fiscal sector, largely due to prudent policies. “This trajectory is expected to continue in the months ahead,” the report added.
Large Scale Manufacturing (LSM) rebounded by 2.4% in July 2024 after contracting by 5.4%, with 14 out of 22 sectors recording positive growth. Production and sales of vehicles increased by 19.5% and 16.3%, respectively, during the first two months of FY2025.
In July FY2025, net federal revenues grew by 7.2% to Rs408.4 billion, driven by a 22.6% rise in tax collection and a 20.5% increase in non-tax revenue. Meanwhile, total expenditures rose by 19.2% to Rs768.6 billion, leading to a fiscal deficit of 0.3% of GDP, up from 0.2% last year. However, the primary balance showed a surplus of 0.1% of GDP, compared to 0.3% last year.
The Federal Board of Revenue (FBR) reported a 20.6% increase in net tax collection during Jul-Aug FY2025, reaching Rs1,456 billion compared to Rs1,207.5 billion the previous year. In August 2024 alone, tax collection rose by 19%, totaling Rs796 billion.
The external account position improved with stronger exports and remittances, though imports also grew. The current account deficit narrowed to $0.2 billion in Jul-Aug FY2025, down from $0.9 billion last year. In August 2024, the account recorded a $75 million surplus. Exports for Jul-Aug FY2025 grew by 7.2% to $4.9 billion, while imports reached $9.5 billion, resulting in a $4.7 billion trade deficit.
With inflationary pressures easing, the Monetary Policy Committee (MPC) cut the policy rate by 200 basis points to 17.5% on September 12, 2024. Money supply (M2) saw a negative growth of 2.6% (Rs -962.3 billion) in the first two months of FY2025, compared to -1.4% (Rs -449.5 billion) last year.
In the social sector, the Benazir Income Support Programme (BISP) increased the quarterly Kafalat Programme payment from Rs10,500 to Rs13,500, effective January 2025, with plans to expand the number of beneficiary families to 10 million by year-end.
The report pointed to signs of recovery in LSM and export sectors, supported by a stable exchange rate, declining inflation, and an accommodative monetary policy. The recovery is expected to gain further momentum due to improved investor confidence, global market recovery, and favorable external conditions.
The government’s commitment to fiscal consolidation is expected to improve fiscal accounts. In agriculture, Kharif 2024 production will depend heavily on favorable weather conditions. Inflation is projected to remain between 8% and 9% in September and October 2024.
On the external front, both exports and imports are expected to pick up. For September 2024, exports are forecasted between $2.5-3.0 billion, imports between $4.5-5.0 billion, and workers’ remittances between $2.7-3.2 billion.
