Inflation to fall from 23.5pc in March to 21-22pc in April: report

ISLAMABAD: The finance ministry said in its monthly report on Friday that inflation was projected to hover around 22.5-23.5pc in March 2024, but it would gradually ease to 21-22pc in April 2024.

The report said that inflation outlook for March 2024 was seen at a moderate level, despite the upward revision of petrol prices and the influence of the Ramazan, which historically leads to bulk buying by consumers and stringing up the demand supply gap. Inflation outlook is moderate on account of incumbent government’s strong resolve of curbing inflationary pressure by instituting enhanced administrative measures. The government has announced Ramazan relief package with increased allocation from earlier Rs7.5 billion to Rs12.5 billion. This will provide relief to masses and cushion the impact of heightened demand during the religious festival. Furthermore, the phenomenon of the high base effect is also contributing to moderation of inflationary pressures. Additionally, the global context plays a role in shaping inflation dynamics. The Food and Agriculture Organisation’s food price index, a key indicator tracking the prices of globally traded food commodities, registered a decrease of 0.7pc in February 2024 compared to the revised January level. The YoY index was down by 10.5pc from its corresponding value one year ago. This decrease, primarily driven by decline in the price indices for cereals and vegetable oils, offset increase in price for sugar, meat, and dairy products.

However, the finance ministry conceded that the widening fiscal deficit indicated a persistent pressure on public finances and the government remained committed to fiscal discipline and revenue mobilisation efforts. The ministry admission in the context of the ongoing IMF programme and its intention for moving towards a fresh bailout package from the Fund clearly indicated the future course of action that the public finances would continue facing major challenge in the coming months.

“However, sustainable economic recovery requires continuation of fiscal consolidation and prudent policy stance, timely and adequate financial inflows to meet gross financing needs and external sector stability,” added the report.

Despite improvement in the primary surplus, the report stated that the widening fiscal deficit indicated a persistent pressure on public finances. To counter these challenges, the government remains highly committed to fiscal discipline through various austerity measures and revenue mobilisation efforts. The main objective is to ensure fiscal deficit within manageable limits, thereby safeguarding fiscal sustainability and promoting economic stability. In last quarter of FY2024, inflation outlook is predicting a moderate headline inflation on account of favourable domestic and global factors. With improved Rabi 2023-24 outlook as the sowing of wheat is aligned to its target – the agriculture sector will contribute to growth at its potential level. On the back of strong growth in agriculture, a recovery is also expected in Large Scale Manufacturing (LSM) sector during the remaining months of CFY. The performance of high frequency indicators is also signalling growth prospects in the ongoing fiscal year. Besides this, external and fiscal sustainability is also contributing to economic revival. Pakistan and the IMF have reached a Staff-Level Agreement (SLA) on the final review of $3 billion SBA to secure a $1.1 billion tranche in coming month.

During July-January FY2024, net federal revenues witnessed a significant rise driven by both tax and non-tax collection. Especially, the substantial increase in FBR tax collection, particularly from domestic sources, demonstrates improved tax compliance, better enforcement, and economic activity. However, rising expenditures owing to higher markup spending highlight the challenges posed by debt servicing obligations. Consequently, the fiscal deficit has been widened by 38 per cent during the first seven months of FY2024.