Pakistan’s inflation likely to ease in range of 20-22% in FY24: SBP

Pakistan’s inflation will ease around 20-22% in the financial year 2023-24, weeks ahead of the general elections, State Bank of Pakistan (SBP) Governor Jameel Ahmed said Friday.

Ahmed’s projections were made in the Governor’s Annual Report 2022-23, released weeks ahead of the general elections, are seen as a major path towards restoring political and economic stability

In the report, he said the inflation target was set on account of contractionary monetary policy’s impact, improvements in domestic supplies, softer non-energy global commodity prices, and the high base effect.

The governor vowed to continue taking decisions to prevent high inflation from becoming entrenched and keeping expectations anchored to achieve the medium-term target of 5-7 % by the end of FY25.

The South Asian nation of 241 million witnessed historic high inflation in FY23, with the Pakistani Rupee falling to a record low against the US dollar, until an International Monetary Fund (IMF) deal helped stave off a sovereign default.

SBP Governor Ahmed noted in the report that Pakistan's Consumer Price Index (CPI) also jumped to 29.2%, which was around the upper bound of the central bank’s revised projections.

The SBP chief said the FY23 was extraordinarily challenging, with a host of external and domestic shocks, amplified by lingering structural weaknesses, contributing to persistently high inflation amid a contraction in economic activities.

Targets missed

The year witnessed a wide-ranging reverberating impact of the devastating monsoon floods, whereas elevated global commodity prices, less-than-envisioned fiscal consolidation, and the delay in the ninth review of IMF’s Extended Fund Facility (EFF) programme added pressures on the external account, he said.

Elevated global commodity prices, pressure on external accounts and ensuing exchange rate depreciation contributed to inflationary pressures amid uncertainty over the completion of the ninth review of the IMF’s EFF programme, inadequate external inflows, and continued scheduled debt repayments, his report outlined.

This was in addition to the pass-through of costlier fuel and food prices, exchange rate depreciation, increases in energy prices and indirect taxes, high inflationary expectations, and ensuing growth in wages.

The report also noted that political uncertainty weighed on business and consumer sentiments, and thus, on economic activity.

Real GDP contracted by 0.2%, and budgetary targets for the government’s fiscal and primary balances were missed by large margins amid less-than-planned tax revenues and lower-than-budgeted reduction in subsidies.