Islamabad: Just ahead of a challenging fiscal year, the government revised upwards its inflation projection for the outgoing month to 13.5%, surpassing the annual target of 12% set for the next fiscal year, indicating sustained economic hardships. According to the Ministry of Finance’s monthly economic outlook report, inflation expectations for June 2024 have risen slightly compared to the previous month, primarily due to higher prices of perishable items driven by Eidul Azha.
Market analysts anticipate a surge in inflation from July 1, coinciding with the implementation of the new budget aimed at raising an additional Rs3.6 trillion from individuals and businesses. Despite increased prices of perishable goods, the finance ministry expects measures to reduce transport costs will help keep inflation for June 2024 between 12.5% and 13.5%.
Beginning Monday, fuel prices are anticipated to rise following a brief period of reduction, with the government imposing a petroleum levy of Rs70 per liter on petrol and diesel. The fiscal year concludes with disappointment as both the government and the State Bank of Pakistan failed to cap the average inflation rate for this fiscal year at 21%, despite record-high interest rates.
The government has set a 12% inflation target for the upcoming fiscal year, although the International Monetary Fund (IMF) and independent economists predict a higher rate. The Economic Advisor wing of the finance ministry stated that the government is implementing administrative, policy, and relief measures to control inflationary pressures, emphasizing efforts to increase food availability.
In contrast to these efforts, the government has imposed taxes on infant milk, packaged milk, dairy farm milk, a 10% tax on poultry feed, and an 18% tax on imported fruits and vegetables. The finance ministry aims to stabilize prices and mitigate market volatility through supply and demand management, presenting a more optimistic inflation outlook.
In May, the pace of price increases moderated to 11.8%, attributed to a higher base effect from May 2023 and stable perishable goods prices. The finance ministry noted that economic activities gained momentum in the latter half of the outgoing fiscal year, with declining inflation pressures, stable external accounts, and gradual industrial recovery due to policy measures.
The ministry highlighted exchange rate stability, supported by improvements in external accounts and inflows, along with anticipated declines in global oil and commodity prices, bolstering economic agent confidence and facilitating economic growth. However, ongoing adverse farming conditions necessitate precautions amid recent extreme heat waves, stressing soil moisture in many areas of the country. Seasonal crops such as cotton, peanuts, sugarcane, seasonal vegetables, and orchards face water stress and require additional irrigation.
Despite stringent economic policies, the ministry sees industrial growth trending upward. Large-scale manufacturing saw modest growth of 0.8% from July to April of this fiscal year, expected to continue due to increased external demand, improved business sentiment, and lifted import restrictions. With easing inflation pressures and adjusted monetary policies, business confidence is set to boost further, potentially sustaining upward growth in large-scale manufacturing in the remaining months and the next fiscal year.
The finance ministry reported that the Federal Board of Revenue (FBR) is striving to meet its annual tax revenue target, while the government maintains a cautious approach to contain the fiscal deficit within manageable limits. The ministry expressed optimism that the fiscal year would conclude with stabilized macroeconomic indicators, anticipating promising growth prospects for Pakistan in the next fiscal year.
The fiscal year 2025 budget aims for sustainable and inclusive growth, prioritizing high-potential sectors like IT, SMEs, mining, tourism, exports, and agriculture. However, ensuring fiscal discipline and effective implementation of growth initiatives, alongside bilateral and multilateral cooperation, will be crucial for sustained growth in the coming years.
