ISLAMABAD: The ministry of finance has expected that overall economic activity will remain positive throughout the outgoing fiscal year due to a rebound in domestic economic activities and improvement in inflationary pressures.
“Recent coordinated efforts by the government organizations to address macroeconomic imbalances, will gear towards achieving stabilization in the coming months and realizing a sustainable and inclusive economic,” said the ministry of finance in its report, ‘Monthly Update & Outlook October 2023’. The first quarter of FY2024 demonstrates that the economy is yielding positive results from the development and government stabilization measures.
In real sector of the economy, cotton and rice production for 2023-24 has posted exceptional growth of 126.6 and 18.0 percent, respectively. Similarly, LSM increased by 2.5 percent on YoY basis in Aug-23 and on MoM basis, it bounced back by 8.4 percent against the decline of 3.7 percent in July. Moreover, the external account has improved considerably and foreign exchange buffers are being built up. At fiscal front, the government’s commitment to fiscal consolidation efforts and maintaining fiscal discipline is evident through better fiscal accounts during July-August (FY2024).
The ministry of finance has projected that it is anticipated that inflation will be better contained compared to the elevated levels observed in the first quarter of FY2024. The projection of inflation is hovering around 27 to 29 percent for October 2023. It stated that the government has slashed the petrol and diesel prices consecutively in two instances, capitalizing on declining global crude rates and a stronger domestic currency. These developments are expected to mitigate the inflationary pressures in the country. Moreover, the subsequent efforts of the subnational governments to implement lower fares of local public and freight transportation, in line with the reduced fuel prices, would further relieve stress on consumer prices.
The report stated that the government’s commitment to fiscal consolidation efforts is evident through better fiscal accounts during the first quarter of the current fiscal year. The fiscal outlook for FY2024 presents encouraging revenue growth and prudent expenditure management. The substantial increase in net federal revenues, primarily driven by a sharp rise in non-tax collection, indicates a positive trend in revenue performance. Similarly, higher-than-expected tax collection in the first quarter of FY2024 highlights the effective implementation of new tax measures, the moderate revival of economic activities, and efficient tax administration.
Whereas, on the expenditure side, higher markup payments will continue to pose significant challenges for fiscal consolidation efforts. Nonetheless, cautious expenditure management is paying off in terms of restricted growth in non-markup spending. This helped in maintaining the primary balance in surplus indicating better fiscal management, while the fiscal deficit has remained at a similar level of 0.8 percent of GDP in Jul-Aug FY2024 compared to the last year. The government is highly committed to achieve long-term fiscal sustainability through prudent fiscal management. Measures are focused on rationalizing expenditures through austerity measures, reducing subsidies and grants, no supplementary grants, increasing revenues through various policy and administration measures, widening the tax base, and removal of tax exemption. These measures would be helpful in building fiscal buffers for social safety nets together with meeting the fiscal and primary balance targets set for the current fiscal year.
The ministry projected that the current account will continue to observe its improved monthly trend. It is expected that exports of goods and services for October 2023 will remain around $ 3.0 billion as observed in September and gradually take its increasing momentum in the coming months as LSM shows some turning point and posted growth of 8.4 percent in August on monthly basis. On the other hand, imports are showing some fluctuations on monthly basis and are expected to remain in the range of $ 4.0 – 4.5 billion in October as PKR is continuously appreciating against USD.
To improve food security situation in the country, the government is facilitating the farmers by providing inputs at affordable prices and ensuring better price of their produce to bridge the gap between cost of production and output price. For Rabi crops 2023-24, the outlook is positive as the seed availability will remain satisfactory and supply of urea and DAP expected to remain stable (Nov-Dec, 2023). However, the water availability is anticipated to be short by 15 percent for Punjab & Sindh during the season. Provinces have been allocated 31.66 MAF of water but prevailing weather conditions are conducive and the shortage is manageable.
