Business
Pakistan's economy stays positive as indicators show improvement: Report
The current account deficit contracted while the fiscal sector remained resilient
Islamabad: The country’s economy has indicated positive developments during the first two months of the current fiscal year (2025) as most of the economic indicators have shown improvement, the finance ministry said in a report released on Friday.
According to the monthly Economic Update and Outlook for September 2024, industrial output has increased and large exporting sectors have also witnessed growth, reflecting an optimistic outlook for exports.
The current account deficit contracted while the fiscal sector remained resilient, mainly attributed to prudent measures taken by the government. “This trajectory is expected to continue in the coming months,” it adds.
According to the report, the agriculture sector is adapting to modernization and innovation in farming practices so an elevation in yield is expected. During FY2025 (July-August), imports of agricultural machinery & implements increased by 105.6 per cent to $17.6 million compared to the same period last year. This growing commitment to mechanization and innovation in farming practices is expected to enhance yield in the coming months.
The Large Scale Manufacturing (LSM) output increased by 2.4 per cent in July 2024, rebounding from a contraction of 5.4 per cent in reflecting improved market conditions and market support. During the period, 14 out of 22 sectors witnessed positive growth.
Additionally, production and sales of all vehicles witnessed an increase of 19.5 per cent and 16.3 per cent respectively during Jul-Aug FY2025,
The Consumer Price Index (CPI) based Inflation receded to single, the lowest in 34 months in August 2024, recorded at 9.6 per cent on a year-on-year basis compared to 27.4 per cent in the same month last year.
In July FY2025, the net federal revenues grew by 7.2 per cent to Rs 408.4 billion from Rs 380.9 billion last year. The growth in revenues has been realized on the back of a 22.6 per cent increase in tax collection and 20.5 per cent rise in the non-tax collection.
Meanwhile, total expenditures grew by 19.2 per cent to Rs 768.6 billion in July FY2025 against Rs 644.9 billion last year. Consequently, the fiscal deficit was recorded at 0.3 per cent of GDP as against 0.2 per cent of GDP in the same month of last year.
Primary balance managed to post a surplus of 0.1 per cent of GDP compared to 0.3 per cent of GDP last year.
During Jul-Aug FY2025, the FBR net tax collection grew by 20.6 per cent to Rs 1,456 billion as compared to Rs 1,207.5 billion same period last year. In August 2024, FBR collected 19.0 per cent more taxes to reach Rs 796 billion from Rs 669 billion last year.
The external account position has strengthened due to improved exports and remittances nevertheless imports also increased. During Jul-Aug FY2025, the current account registered a deficit of $0.2 billion compared to $ 0.9 billion last year. However, it recorded a surplus of $ 75 million in August 2024. During Jul-Aug FY2025, goods exports increased by 7.2 per cent, reaching $ 4.9 billion, while imports stood at $ 9.5 billion, compared to $ 8.4 billion last year leading to a trade deficit of $ 4.7 billion.
Meanwhile, amid diminishing inflationary pressures, improved inflation expectations and business confidence, the Monetary Policy Committee (MPC) cut the policy rate by 200 basis points to 17.5 per cent in its decision held on September 12, 2024.
During 1st July – 30th August FY2025, money supply (M2) showed negative growth of 2.6 per cent (Rs. -962.3 billion) compared to negative growth of 1.4 per cent (Rs. -449.5 billion) last year.
In the social safety sector, BISP has raised the quarterly instalment of the Kafalat Programme from 10,500 rupees to 13,500 rupees starting in January 2025 and the number of families benefiting will reach 10 million (1 crore) by the end of this year.
According to the report, following a phase of decline, LSM is now regaining its footing and major exporting sectors show readiness to scale up production.
This recovery is expected to be bolstered by a favourable external environment, a stable exchange rate, and declining inflationary pressures. Moreover, an accommodative monetary policy stance, improved investors’ confidence and the global market recovery, will provide additional support to foster sustainable industrial growth.
The government’s commitment to fiscal consolidation will contribute to improved fiscal accounts. For agriculture, the outlook of Kharif 2024 production, the weather being a critical factor will pave the way for productivity. Inflation is expected to remain within the range of 8.0% to 9.0% in September and October 2024.
On external front, it is expected that exports and imports will observe an increase in momentum. In September 2024, the exports are likely to remain within range of $ 2.5-3.0 billion, imports $4.5-5.0 billion and workers’ remittances $ 2.7-3.2 billion.