ISLAMABAD: The Ministry of Finance has warned that headline inflation will remain at a “elevated level” in the coming months, raising public and government concerns, The News reported Sunday.
Saturday’s Finance Ministry monthly economic update predicts 36-38% CPI-based inflation for April.
Food and energy price hikes cause it. Currency depreciation and rising administered prices raised prices. The report noted that global commodity prices are declining but still higher than pre-pandemic levels.
It added that slow flood recovery has depleted crop supplies, raising inflation.
Despite SBP monetary contraction, inflationary expectations are rising. The federal and provincial governments are closely monitoring essential item demand-supply gaps and taking steps to reduce inflationary pressures.
According to the report, Pakistan’s economy is still slowing and inflating.
The BOP’s current account surplused due to government stabilisation policies.
External financing, exchange rate stability, and economic confidence may improve. The Ministry of Finance hopes the IMF programme will boost capital inflows, stabilise the exchange rate, and lower inflation.
Kharif 2023 will have abundant seeds, agriculture credit, and fertilisers.
The Pakistan Met Department (PMD) predicted above-normal rains in April–June 2023, especially in the north. June should be drier. Most of the nation may have above-average temperatures. Temperatures melt northern snow faster. Main rain-fed areas may have enough water for crops in Kharif, but lower areas will not.
Large Scale Manufacturing
Large-scale manufacturing (LSM) is the most vulnerable sector. Pakistan’s main trading partners’ cycles are positively correlated.
LSM activity has been below capacity since fiscal year start. Pakistan’s export markets cycle. Correcting macroeconomic imbalances worsened Pakistan’s cyclical manufacturing recession.
LSM output appears to be bottoming out after months of underperformance. LSM activity has also stabilised seasonally. In March, seasonal effects should boost LSM output. High base effect may lower YoY LSM.
The March goods and services trade deficit fell 9.1% MoM and 54% YoY, according to BoP data. March exports rose 9.5% and imports 2.3%. Exports outpaced imports, reducing the trade deficit.
Exchange rate adjustments, Ramadan, and Eid increased remittances 27% MoM to $2.5 billion in March 2023 from $1.99 billion in February. Due to these factors, the current account showed a $654 million surplus in March after November 2020.
Imports are expected to rise in April due to the government’s relaxation of pro-growth imports.
March remittances won’t change. These will lower the current account deficit.
Fiscal consolidation continues despite unprecedented domestic and global economic challenges. Stabilise macroeconomics with fiscal buffers.
Consolidation raised tax and non-tax revenues and cut non-markup spending, limiting spending growth.
Financial risks persist despite improvement. The Federal Board of Revenue (FBR) tax collection grew 18% but missed its target for the first nine months of the current fiscal year due to a slowdown in domestic economic activity and import compression.
Despite cutting non-markup spending, higher domestic and global policy rates have raised markups.
The fiscal deficit must be reduced by effective revenue mobilisation and prudent expenditure management.
