ISLAMABAD: The government on Tuesday claim­­ed that the inflation rate is moving towards single-digit territory, and all macroeconomic indicators are showing signs of enhanced stability, which is expected to be further bolstered by the new IMF bailout in the coming months.

“In June 2024, CPI inflation reached the cusp of the single-digit range (at 12.6 per cent) ... is heading towards single digits,” said the Ministry of Finance in its Monthly Economic Update & Outlook (July 2024).

The CPI inflation stood at 11.8pc in May 2024 and 29.4pc in June 2023. The average annual inflation fell to 23.4pc in FY24 from 29.2pc in FY23. The significant contributors to inflation were housing, water, electricity, gas and fuel (35.3pc), perishable food items (20.8pc), health (19.8pc), and clothing and footwear (17.8pc).

The ministry estimated the inflation to be in the range of 12-13pc in July 2024 and 11-12pc in August 2024.

The report said the country’s economy moved towards stability in FY2024 with decreasing inflation, a surplus in the primary fiscal account, a negligible current account deficit, and a stable exchange rate. In the real sector, agriculture outperformed, whereas large-scale manufacturing (LSM) is set to take off, it added.

It said the agriculture sector growth target of 2pc is expected to be achieved this year. Due to a high base in the previous year, important and other crops are projected to keep a good pace of growth in 2024-25. Furthermore, livestock, fishery, and forestry are projected to continue on the growing trajectory due to favourable and encouraging environment.

The recovery that began in the LSM will likely continue throughout FY25, driven by a stable exchange rate, macroeconomic stability, and relaxed import restrictions. The ministry expected the exports and imports to continue to show an increasing trend and remain within the range of $2.4-2.7 billion and $4.5-4.9bn, respectively, in July 2024.

“Revived domestic economic activities, better agriculture output, stable exchange rate, improved foreign demand, and low global commodity prices will remain instrumental for external sector stability,” the ministry observed.

It attributed the improvement in the external account position to “contained imports resulting from prudent fiscal and monetary management, while exports and remittances increased significantly”. To further strengthen stability, the government has recently reached a staff-level agreement with the IMF on a 37-month Extended Fund Facility Arrangement (EFF) for $7bn.

The agriculture sector registered a robust growth in FY24 and resulted in 43.5pc increase in tractor production and 47pc in sales, while agricultural credit disbursement increased by 26pc to Rs1.973 trillion during Jul-May FY24 when compared to the same period last year. “However, due to the cobweb phenomenon, the sowing area of cotton decreased in Punjab (1.304 million hectares against the target of 1.680m hectares) and Sindh (0.550m hectares against the target of 0.630m hectares),” said the report.

Similarly, for Kharif sowing of 2024 (April-June), urea offtake also dropped 18pc to 1,210,000 tonnes, while DAP offtake declined by 6.8pc to 256,000 tonnes.

However, improved-quality cotton seed availability has been ensured in both Punjab and Sindh, which will likely improve yield, provided the weather remains favourable.

The report said the LSM sector was on the path to recovery, with just 1pc expansion during July-May FY24, compared to last year’s contraction of 9.6pc. In May 2024, LSM registered a growth of 7.3pc year-on-year and 7.5pc month-on-month, driven by strong performance in food, apparel, leather, coke and petroleum products, chemicals, pharmaceuticals, and machinery and equipment.

Fiscal balance improved on account of the government’s consolidation efforts — increasing revenue and keeping non-interest spending in check.

Pakistan’s total liquid foreign exchange reserves were recorded at $14.7bn on July 12, 2024, with the State Bank of Pakistan’s reserves at $9.4bn. Despite high policy rate, money supply grew while the Pakistan Stock Market continued to show upward trend, the report said.

Published in Dawn, July 31st, 2024