ISLAMABAD The finance ministry acknowledged on Wednesday that the major issue was greater mark-up payments as a result of an elevated policy rate, which resulted in a steep spike in current expenditures. This raised concerns about the enormous surge in expenditures.
The administration acknowledged that the second concern was increasing inflationary pressures, predicting that inflation would stay at roughly 27.5-28.5% in January 2024 and then gradually decline to 26.5-27.5% in February of the same year.
“A major obstacle is the increased mark-up payments brought on by the high policy rate, which causes current expenses to spike sharply. The government is working nonstop to restrict non-mark-up spending through austerity measures in order to solve this difficulty, as seen by the increase in primary surplus from July to December of FY2024.
The finance ministry acknowledged in its monthly report, which was made public on Wednesday, that “the expenditure is expected to remain under pressure during the current fiscal year due to mounting mark-up payments in response to high policy rates.”
Regarding inflation, the study notes that rising prices for vegetables and perishables, along with rising utility (gas and electricity) expenses, have intensified the pressure on inflation.
After India banned onions, there was a spike in export orders that put pressure on the local supply and drove up domestic prices. The demand-supply gap was widened when certain commodities, including tomatoes, saw price increases as a result of supply disruptions brought on by extreme weather. In a similar vein, decreased supply—particularly from controlled sheds with greater input costs—caused chicken prices to rise.
To alleviate the supply shortage of poultry and perishables, the government has eased the import prohibition on soybeans and raised the minimum export price in an effort to decrease the export of onions. The inflation outlook for January FY2024 is a little bit more moderate than it was for the previous month.
While supply chain interruptions and rising energy costs continue to be obstacles, the drop in gasoline prices presents a positive counterpoint that may lessen the overall effect on consumers and the manufacturing sectors.
Because of the good performance of the crops this year, the agriculture industry is performing better than it did last year. Rabi 2023–24’s principal crop, wheat, is anticipated to do well because cultivation has surpassed the goal. On the down side, because January 2024 is the coldest and most crucial month for the early growth of Rabi crops in the majority of the nation’s agricultural plains, unusual weather shocks could have an impact on productivity. Farmers can take preventative action to shield their cattle, vegetables, orchids, and crops from the damaging effects of the predicted exceptionally cold weather.
The LSM cycle is somewhat more volatile than other cycles because it is centered on important industrial sectors rather than the overall GDP, although it typically tracks the cyclical changes in major trading partners.
The aggregate CLI in Pakistan’s primary export markets indicates that the economic climate in those markets is improving. It has become better and has attained its potential, indicating a favorable external environment that boosts Pakistan’s industrial performance.
Domestically, the industrial sector is beginning to revive despite ongoing obstacles, and government initiatives to promote growth—particularly in SMEs—are giving it a boost. This is demonstrated by the LSM’s YoY increase of 1.59% and MoM growth of 3.63% in November 2023.
The upward trend has been noted as a result of improved export demand in Pakistan’s primary export markets as well as revitalized domestic economic activity.
Conversely, on a month-over-month and year-over-year basis, imports have been restrained by 6.1% and 0.1%, respectively. Remittances from employees are another source of the current account surplus; they increased by 5.4% and 13.4%, respectively, on a month-over-month and year-over-year basis. The external sector is more stable as a result of the recovery of the home economy and a steady exchange rate. In the second half of FY2024, it is anticipated that these developments and measures to boost exports and remittances would continue to have a positive impact on the trade balance and current account.
The balance of payments (BoP) data as of December 2023 demonstrates the momentum of stability in the external sector. This is demonstrated by the current account, which turns into a surplus of $397 million, the surplus value witnessed since June 2023.
The controlled trade deficit—which fell by 25.5% and 23.5% on a month-over-month and year-over-year basis—is mostly to blame for this trend.
While revenue performance is good from a fiscal standpoint, expenses are under a great deal of pressure due to increased markup payments. In spite of this, the government is managing non-mark-up spending, as seen by the primary surplus’s ongoing improvement. After the Executive Board of the IMF successfully completed the first review under the Standby Arrangements (SBA), Pakistan recently got a tranche of US$705.6 million. This is restoring market confidence and stable exchange rates.
According to the prognosis, economic activity is predicted to pick up even more in the second half of FY2024, According to the report’s conclusion, attaining the growth objective for the current fiscal year is dependent on the maintenance of sensible and effective economic policies.
