ISLAMABAD: The government on Wednesday announced that it had retired about Rs1.9 trillion debt while taking advantage of the unprecedented surge in revenues from petroleum development levy (PDL) and the State Bank of Pakistan’s (SBP) profits driven by the highest interest rate and projected further decline in inflation.

In its Monthly Economic Update & Outlook (November 2024), the Ministry of Finance (MoF) showed cautious optimism over economic recovery, saying the large-scale manufacturing sector was struggling to strive and hoped the rate of inflation to fall below six per cent next month.

In overall terms, the MoF said that economy was not only showing sustained recovery, but actually showed “better than expected improvement” in the first four months by receding inflation, a significant increase in remittances and IT exports, sustained external and fiscal sectors, and a downward trend in interest rate. The recovery across all sectors will support the achievement of the targeted economic outlook in coming quarters.

“Inflation is expected to remain within the range of 5.8-6.8pc in November, further receding to 5.6-6.5pc in December,” it said, adding that both current account and fiscal account posted surpluses — a reversal from continued twin deficits. “The current account turned into a surplus during July-October FY25, bolstering external sector sustainability,” it said, adding that outlook showed that exports, imports and workers’ remittances will continue to observe increasing trend — exports will remain within a range of $2.5-3bn, imports $4.5-4.9bn and remittances $2.8-3.3bn in November.

Finance ministry sees inflation staying 5.8-6.8pc in November

“The government has retired Rs1,866.8bn against the borrowing of Rs753.2bn last year,” for budgetary support, the MoF said, adding that as positive outcome, the private sector borrowed Rs447.1bn as compared to the retirement of Rs153.5bn last year.

This was possible because of 186pc growth in federal revenues, mainly driven by surplus profit of the SBP and levy on petroleum products. The ministry attributed the fiscal sector stability to prudent fiscal consolidation. It said the net federal revenues grew by 186pc to Rs4.019tr from Rs1.406tr during same period last year. “The unprecedented increase in revenues was mainly driven by the surplus profit of the State Bank of Pakistan (Rs 2.5tr).” The tax and non-tax revenues increased by 25.5pc and 567pc to Rs2.563tr and Rs3.022tr, respectively.

In contrast, total expenditure grew slightly by 1.8pc to Rs2.483tr (Rs2.438tr last year). The mark-up expenditure declined by 5.3pc owing to the gradual decline in the policy rate. Resultantly, the fiscal balance posted a surplus of Rs1.896tr (1.5pc of GDP) compared to the deficit of Rs981bn (0.9pc of GDP), while the primary balance (surplus) reached Rs3.202tr (2.6pc of GDP) as compared to Rs400bn (0.4pc of GDP) in the same period last year.

The report said the real sector of the economy continued to get support from agriculture and industrial sector policies. On the agriculture front, wheat crop sowing was in progress and the MoF expected it would achieve the targeted area and production owing to its “facilitations” regarding the timely provision of key inputs to the farmers at reasonable prices.

During July-October FY25, imports of agricultural machinery increased by 70.9pc to $39.6 million while DAP offtake in October stood at 309,000 tonnes, up 92pc over last year, but urea offtake was down 22pc to 358,000 tonnes.

The MoF conceded the LSM was struggling to strive as its year-on-year growth remained negative but month-on-month performance was showing signs of resilience, with gradual production increases in key sectors such as textile and automobiles. Continued policy support and external stability provide a foundation for sustained improvement, suggesting a cautiously optimistic outlook for progressive recovery. “In the coming months, fiscal consolidation and contained inflation will provide impetus to economic activities,” the MoF hoped.

The report said the monetary policy was now signaling certainty and boosting confidence while stock market was on an upward journey.

Published in Dawn, November 28th, 2024