Pakistan’s economy is showing signs of stabilization, driven by a substantial reduction in the current account deficit, an increase in goods exports, and a stable exchange rate. The finance ministry reports a promising outlook with declining inflation, a surplus in the primary fiscal account, and a noteworthy increase in foreign direct investment. These positive indicators reflect the government’s efforts to manage fiscal and monetary policies prudently, setting the stage for continued economic growth.

The finance ministry has reported that Pakistan’s economy is advancing towards stability in fiscal year 2023-24, characterized by declining inflation, a surplus in the primary fiscal account, a minimal current account deficit, and a stable exchange rate. In its monthly outlook for July, it noted that Consumer Price Index (CPI) inflation was nearing the single-digit threshold. CPI inflation was recorded at 12.6% year-on-year in June, up from 11.8% the previous month but down significantly from 29.4% in June 2023. The report indicated that average annual inflation decreased to 23.4% in FY2024, compared to 29.2% the previous year.

The outlook highlighted the steady movement of Pakistan’s economy towards stability, with reduced inflation, a primary fiscal account surplus, a negligible current account deficit, and a stable exchange rate. “In the real sector, agriculture has outperformed, and large-scale manufacturing is poised for growth,” it stated.

“In June 2024, CPI inflation approached the single-digit range, while the external account position improved due to controlled imports resulting from prudent fiscal and monetary policies, alongside significant increases in exports and remittances,” the report noted. To bolster stability further, the government recently reached a staff-level agreement with the IMF on a 37-month Extended Fund Facility Arrangement (EFF) worth $7 billion.

In FY2024, tractor production surged to 45,529 units, marking a 43.5% increase from FY2023, while tractor sales rose by 47.0% to 45,494 units. Agricultural credit disbursement reached Rs 1,972.8 billion during Jul-May FY2024, a 26.0% increase from the previous year. However, the sowing area for cotton decreased in Punjab and Sindh due to the cobweb phenomenon.

Large-scale manufacturing (LSM) expanded by 1.0% during Jul-May FY2024, compared to a contraction of 9.6% the previous year. In May 2024, LSM registered a year-on-year growth of 7.3% and a month-on-month growth of 7.5%, driven by robust performance in food, apparel, leather, coke and petroleum products, chemicals, pharmaceuticals, and machinery and equipment.

The government successfully reduced the fiscal deficit to 4.9% of GDP in July-May FY2024, down from 5.5% the previous year. The primary balance showed a surplus of Rs. 1,620.5 billion (1.5% of GDP) during Jul-May FY2024, contrasting with a deficit of Rs. 112.0 billion (-0.1% of GDP) last year, achieved through increased revenue and controlled non-interest spending.

During Jul-May FY2024, net federal revenues reached Rs. 6,202.6 billion, a 49.0% increase from the previous year, driven by both tax and non-tax collections. Non-tax revenues saw a remarkable 90.0% increase.

In FY2024, the current account deficit contracted to $0.7 billion, a significant reduction from the $3.3 billion deficit of the previous year. Goods exports saw an increase of 11.5%, reaching $31.1 billion, while imports stood at $53.2 billion, up slightly from $52.3 billion in FY2023, marking a 0.9% growth. Consequently, the goods trade deficit narrowed to $22.1 billion, down from $24.8 billion last year.

Foreign Direct Investment (FDI) rose by 16.9%, totaling $1.9 billion. Pakistan’s total liquid foreign exchange reserves were recorded at $14.7 billion as of July 12, 2024, with the State Bank of Pakistan holding $9.4 billion in reserves.

During FY2024, the money supply (M2) increased by 15.5%, compared to 14.2% in the previous year. This growth was driven by a rise in the banking sector’s net foreign assets by Rs 540.6 billion, contrasting with a decline the previous year.

In May, the Pakistan Poverty Alleviation Fund, in collaboration with its 24 partner organizations, disbursed 28,913 interest-free loans amounting to Rs 1.38 billion. Between February 2023 and March 2024, the government distributed Rs 83.683 billion to beneficiaries under the Prime Minister Youth Business & Agriculture Loan Scheme.

Despite limited fiscal space, the government has implemented various measures to alleviate the impact of inflation on vulnerable populations, including providing a three-month electricity subsidy for users consuming up to 200 units.

In June, the Bureau of Emigration & Overseas Employment registered 43,356 workers for overseas employment in various countries. Looking ahead to the current fiscal year, the report projects a 2% growth target for the agriculture sector. Important crops and other crops are expected to maintain a robust pace of growth in fisheries for 2024-25 due to a high base in the previous year.

Furthermore, livestock and forestry are anticipated to continue their growth trajectory, benefiting from a favorable and encouraging environment. The recovery observed in large-scale manufacturing (LSM) is likely to persist throughout FY2025, driven by a stable exchange rate, macroeconomic stability, and eased import restrictions.

Inflation is projected to range between 12.0-13.0% in July 2024 and 11.0-12.0% in August 2024. It is expected that both exports and imports will continue their upward trend, remaining within the range of $2.4-2.7 billion and $4.5-4.9 billion, respectively, in July 2024.

The report adds that revived domestic economic activities, improved agricultural output, a stable exchange rate, increased foreign demand, and low global commodity prices will be instrumental in maintaining external sector stability.

The stabilization of Pakistan’s economy, marked by a shrinking current account deficit, increased exports, and a stable exchange rate, is a testament to effective fiscal and monetary management. With a focus on bolstering the agriculture sector, expanding large-scale manufacturing, and implementing measures to mitigate inflation’s impact on vulnerable populations, the government is poised to sustain this positive momentum. Looking ahead, maintaining external sector stability through revived domestic economic activities, improved agricultural output, and favorable global conditions will be crucial in driving Pakistan’s economic growth and resilience.