According to the News Agency on Sunday, the Ministry of Finance has issued a warning that overall inflation is likely to continue at a “elevated level” in the upcoming months, raising concerns on the part of both the public and the government.
According to the Finance Ministry’s monthly economic update report, which was released on Saturday, consumer price index (CPI)-based inflation will be averaging between 36-38% in April.
“Its key drivers are food and energy price hikes. Further, currency depreciation and rising administered prices have contributed to the jack-up of the overall price level. Although global commodity prices are showing a downward trend, however, are still on the higher side compared to the pre-pandemic level,” said the report.
The delayed recovery from flood-related damages has left the supply of crucial crops short of local demand, which has exacerbated inflation, it was said.
Inflationary expectations aren’t decreasing notwithstanding the State Bank of Pakistan’s (SBP) contractionary monetary policies.
However, the federal government is closely observing the demand-supply gap for necessities and is acting as necessary to reduce inflation pressures in coordination with the provincial governments.
Increase in Inflation
The research claims that Pakistan’s economy is still dealing with serious problems, including high inflation and a downturn in business activity.
As a result of the government’s stabilization measures, the current account of the balance of payments (BOP) transformed into a surplus, but, some encouraging signs are emerging.
This might ease the external finance restriction, support greater currency rate stability, and boost consumer confidence.
“Further, successful completion of the IMF [International Monetary Fund] program will pave the way to attract more capital inflows, further stabilization in the exchange rate and alleviating the inflationary pressures,” the Ministry of Finance hopes.
Rainfall Schedule
The availability of inputs, including seeds, agricultural loans, and fertilizers, will be sufficient during the Kharif 2023.
Rainfall in the upcoming three months (April–June 2023) is predicted to be slightly above average, especially in the top portion of the country, according to the Pakistan Met Department (PMD). June is predicted to have less rainy days.
In the vast majority of the nation, the temperature may continue to be slightly above average. The melting of the snow in the northern regions will be accelerated by a steady rise in temperature.
While lower regions of the country will experience a slight shortage during the Kharif season, the seasonal rainfall may be able to supply water for crops in the major rain-fed areas.
The industrial sector is the one that is most susceptible to changes in the environment, as indicated by the large-scale manufacturing (LSM) index. Its cyclical pattern exhibits a strong positive correlation with Pakistan’s primary trading partners’ cyclical positions.
LSM activity has been below its inherent capacity level since the start of the current fiscal year. The cyclical position in Pakistan’s top export markets bears the same observation.
The essential policy changes to correct the macroeconomic imbalances also made the cyclical decline in Pakistan’s industrial production worse.
Although LSM output has recently started to bottom out, it still continues to be far below its potential. The seasonally adjusted LSM activity, which has stabilized in recent months, also supports this.
Due to favorable seasonal factors, it is anticipated that LSM output in March will have increased compared to February. However, the high base effect may still cause the YoY LSM to be slightly negative.
According to BoP data, the trade deficit in goods and services decreased by 9.1% on a MoM basis and 54% on a YoY basis in the month of March.
The month of March saw some encouraging improvements as exports of goods and services rose by 9.5% while imports of goods and services rose by 2.3%.
As long as the trade deficit is kept in check, the impact of the rise in imports has been partially offset by the high growth in exports.
Due to an improved scenario following exchange rate adjustments, Ramadan and Eid factors played a significant part in attracting larger revenues, and remittances grew by 27% on a MoM basis to $2.5 billion in March 2023 as opposed to $1.99 billion in February 2023.
The current account showed a surplus of $654 million in the month of March, the highest level seen after November 2020, as a result of all the aforesaid positive aspects.
The government’s decision to remove restrictions on pro-growth imports in order to boost local economic activity is projected to result in a slight rise in imports for the month of April compared to March.
Remittances will continue to be at the same level as in March, nevertheless. As a result, all of these elements will help to reduce the overall current account deficit.
The efforts to consolidate the budget are proceeding despite enormous obstacles brought on by the domestic and international economic crises. In addition to building much-needed fiscal buffers, the goal is to bring back macroeconomic stability.
As a result of the efficient use of consolidation measures, both tax and non-tax revenues saw a rapid increase, and non-markup expenditures saw a significant decrease, which helped to restrain overall spending growth.
Risks to the financial sector remain exist notwithstanding the progress. like the Federal Board of Revenue’s (FBR) tax collection, which is increasing at a rate of 18%.
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