ISLAMABAD: The national economy is steadily progressing along a promising path toward recovery, propelled by the momentum of economic revival initiatives that are fostering a significant surge in economic activity.
According to the “Monthly economic update & outlook November 2023,” released by the Ministry of Finance, the positive economic signals and recovery indicators have triggered the market sentiment, propelling the KSE-100 index of PSX by 33% in November, surpassing the 58199-point mark for the first time in history.
The sustained monetary policy stance and successful International Monetary Fund staff review in November drove the market confidence. Owing to reforms in exchange companies and a reduction in illicit transactions, the exchange rate remains stable thus exerting a positive impact on overall economic activity.
The Large-Scale Manufacturing (LSM) sector demonstrated a positive trend for the second consecutive month while posting a growth of 1.0 percent in September 2023. After several months of decline, the industry has been on the path of recovery since August 2023. The stability in the exchange rate, ease in supply disruptions due to the removal of import restrictions, and improved dollar liquidity contributed to this economic upswing.
Meanwhile, in the agriculture sector, the input situation shows positive signs, whereas the farm tractor production and sales witnessed the growth of 55.1 percent (17,098) and 86.8 percent (17,296), respectively during July-October of fiscal year 2024 over the corresponding period last year. During October 2023 the 6.8 percent growth in urea and 122 percent in DAP off-take compared to October 2022,
indicating a positive growth in Rabi crops. On the fiscal front, healthy growth in revenues outpaced the growth in expenditure during the first quarter of current fiscal year. Both tax and non-tax collection attributed to a significant rise in total revenues, however, a substantial increase in non-tax collection on the back of higher receipts from petroleum levy remained the major source of the increase. With healthy growth in revenues relative to expenditures, the fiscal deficit reduced to 0.9 percent of GDP during the period from July-September 2023-24 from 1.0 percent of GDP last year. Primary balances continued to be in surplus and improved to Rs.416.8 billion (0.4 percent of GDP) in the first quarter of fiscal year 2023-24 from Rs.134.7 billion (0.2 percent of GDP) last year. The headline inflation sustained at 26.9 percent on year on year (YoY) basis in October 2023 as compared to 26.6 percent in October 2022.
The major drivers include food and nonalcoholic beverages, housing, water, electricity, gas & fuel, transport, and furnishing & household equipment maintenance. Moreover, the reduction of fuel prices by the government would help further easing out inflationary pressures. On the external front, in July-October 2023-24, the current account marked a deficit of $1.05 billion as against a deficit of $ 3.1 billion last year, largely reflecting an improvement in the trade balance. YoY exports increased by 21.1 percent to $ 2.8 billion in October 2023 as compared to $ 2.3 billion in September 2023, owing to ease in import restrictions, which resulted in a smooth supply of raw material for export-oriented industries. The foreign direct investment reached $ 524.7million during the period from July-October 2023-24 ($ 489.9 million last year) increased by 7.1 percent mainly on account of Chinese investment. Month on month remittances increased by 11.5 percent in October 2023 ($ 2.5 billion) as compared to September 2023 ($ 2.2 billion), and YoY it grew by 9.1 percent because of structural reforms related to forex market and convergence of exchange rate in interbank and open markets.
The government expects remittances to recover in October 2023, as spreads between the interbank and open market have reduced below 1 percent. However, global inflation has impacted the disposable incomes of overseas workers, resulting slowdown across the board, particularly Bangladesh, India, and the Philippines. The monetary policy rate was maintained at 22 percent, owing to the significant performance of high-frequency indicators and improved inflation outlook. Overall, positive economic signals and recovery indicators steering the improvement in the GDP outlook for the fiscal year.