Pakistan’s headline inflation is expected to further ease over the next two months, likely hovering between 8-9%, the Finance Division reported on Friday. In its ‘Monthly Economic Update and Outlook’, the ministry highlighted that the Consumer Price Index (CPI) fell to single digits in August 2024, marking a 34-month low, and is projected to decline further in the short term.
Inflation for August stood at 9.6% on a year-on-year basis, a significant drop from 27.4% in the same month the previous year. The report noted that Pakistan’s economy has shown signs of recovery in the first two months of the fiscal year 2025.
“Inflation has dropped to single digits, industrial output has strengthened, and major export sectors have experienced growth, suggesting an optimistic export outlook,” the report stated. It added that the current account deficit (CAD) contracted while the fiscal sector remained resilient due to prudent measures. This positive trend is expected to continue in the coming months.
Large Scale Manufacturing (LSM) output increased by 2.4% in July 2024, rebounding from a contraction of 5.4%, reflecting improved market conditions and support. During this period, 14 out of 22 sectors witnessed positive growth. Additionally, production and sales of vehicles saw an increase of 19.5% and 16.3%, respectively, during Jul-Aug FY2025.
In July FY2025, net federal revenues grew by 7.2% to Rs408.4 billion from Rs380.9 billion in the last fiscal year. This growth was realised on the back of a 22.6% increase in tax collection and a 20.5% rise in non-tax collection. Total expenditures grew by 19.2% to Rs768.6 billion, up from Rs644.9 billion the previous year. Consequently, the fiscal deficit was recorded at 0.3% of GDP, compared to 0.2% of GDP in the same month last year. The primary balance posted a surplus of 0.1% of GDP, compared to 0.3% of GDP last year.
During Jul-Aug FY2025, the Federal Board of Revenue’s (FBR) net tax collection grew by 20.6% to Rs1,456 billion, compared to Rs1,207.5 billion during the same period last year. In August 2024, the FBR collected 19.0% more taxes, reaching Rs796 billion from Rs669 billion the previous year.
The external account position has strengthened due to improved exports and remittances, although imports have also increased. During Jul-Aug FY2025, the current account registered a deficit of $0.2 billion compared to $0.9 billion last year. However, it recorded a surplus of $75 million in August 2024. Goods exports increased by 7.2%, reaching $4.9 billion, while imports stood at $9.5 billion compared to $8.4 billion last year, leading to a trade deficit of $4.7 billion.
Amid diminishing inflationary pressures and improved business confidence, the Monetary Policy Committee (MPC) cut the policy rate by 200 basis points to 17.5% on September 12, 2024. During July 1–August 30, FY2025, money supply (M2) showed a negative growth of 2.6% (Rs -962.3 billion) compared to negative growth of 1.4% (Rs -449.5 billion) the previous year.
In the social safety sector, the Benazir Income Support Programme (BISP) has raised the quarterly installment of the Kafalat Programme from Rs10,500 to Rs13,500 starting in January 2025, with the number of benefiting families expected to reach 10 million by the end of the year.
Following a period of decline, LSM is regaining its footing, with major exporting sectors ready to scale up production. This recovery is expected to be bolstered by a favorable external environment, a stable exchange rate, and declining inflationary pressures. Moreover, an accommodative monetary policy stance, improved investor confidence, and global market recovery will provide additional support for sustainable industrial growth.
The government’s commitment to fiscal consolidation will contribute to improved fiscal accounts. In agriculture, the outlook for Kharif 2024 production, dependent on weather conditions, will pave the way for productivity. Inflation is expected to remain within the range of 8.0% to 9.0% in September and October 2024.
On the external front, exports and imports are expected to gain momentum. In September 2024, exports are likely to remain within the range of $2.5–3.0 billion, imports at $4.5–5.0 billion, and workers’ remittances at $2.7–3.2 billion.
