Ministry expects deficit to reduce this fiscal

ISLAMABAD: The Ministry of Finance on Thursday claimed that the fiscal deficit for the current fiscal year would be contained at a lower level than the previous year, reflecting the government’s commitment to fiscal discipline.

In the last fiscal year (FY2024), the absolute fiscal deficit stood at Rs7.2 trillion. During the first half of FY2023-24, the fiscal deficit was Rs2.48 trillion, which was reduced to Rs1.537 trillion in the same period of the current fiscal year (FY2024-25). However, the ministry did not highlight that the State Bank of Pakistan’s (SBP) profit, booked in the first quarter (July-September), significantly altered the fiscal position. In its monthly report released on Thursday, the ministry stated that the government remained committed to supporting farmers through various initiatives to improve agricultural productivity. Favourable weather conditions are crucial for achieving production targets. According to the Pakistan Meteorological Department (PMD), relatively dry conditions may cause water stress for Rabi crops, particularly wheat in rain-fed areas.

Meanwhile, the Large-Scale Manufacturing (LSM) sector showed signs of recovery in recent months. In January, the LSM growth is expected to be supported by rising imports of machinery and raw materials, along with increased cement dispatches.

A decline in inflation and an accommodative monetary policy are likely to further boost business confidence, supporting the LSM recovery. The report projected that inflation would remain within the range of 2.0-3.0 percent in February 2025, with a slight increase to 3.0-4.0 percent by March 2025.

The fiscal performance during the first half of FY2025 reflects the government’s effective consolidation measures, which have improved expenditure management and resource mobilisation. These measures are expected to keep the fiscal deficit lower than the previous year while ensuring fiscal discipline. Similarly, with controlled non-markup expenditures, the primary surplus is expected to improve further in the coming months.

On the external front, exports, imports, and workers’ remittances are expected to maintain their upward trend. Remittances are likely to increase further due to seasonal factors such as Ramazan, Eid-ul-Fitr, and Eid-ul-Adha. Exports and imports are projected to improve with the expansion in economic activity, helping to keep the current account deficit (CAD) within manageable limits.

Pakistan’s economy demonstrated positive developments during July-January FY2025, as evidenced by improvements in key economic indicators. Export-oriented industries grew despite the slow recovery in the LSM sector. A steep decline in inflation fostered a stable financial environment, enabling the central bank to steadily reduce the policy rate. Investor confidence was evident in the strong performance of the Pakistan Stock Exchange (PSX). Higher growth in remittances and foreign direct investment (FDI) further strengthened economic sentiment. These factors collectively indicate positive prospects for economic growth in the coming months. For the Rabi season 2024-25, wheat has been sown on 22.07 million acres, with an expected production of 27.9 million tonnes. The Large-Scale Manufacturing (LSM) sector exhibited a strong month-on-month (MoM) recovery, growing by 19.1 percent in December 2024 compared to November 2024. However, on a year-on-year (YoY) basis, the LSM declined by 3.7 percent, compared to a growth of 3.1 percent in the same period last year. During July-December FY2025, the LSM posted a decline of 1.9 percent, compared to a contraction of 1.0 percent in the corresponding period of FY2024.

The Consumer Price Index (CPI) inflation recorded a year-on-year (YoY) increase of 2.4 percent in January 2025, compared to 4.1 percent in the previous month and 28.3 percent in January 2024. On a month-on-month (MoM) basis, inflation slightly increased by 0.2 percent in January 2025, compared to an increase of 0.1 percent in the previous month and 1.8 percent in January 2024.