ISLAMABAD: Amid the drop in urea sales and cotton production, the government on Friday claimed that the national economy was setting a positive tone for the coming months, with inflation expected to decline to single digits or just above that in August.

“On account of stability in economic indicators, inflation is expected to remain within the range of 9.5-10.5pc in August and further decline to 9-10pc in September”, said the Ministry of Finance in its Monthly Economic Update & Outlook (August 2024).

It said the economy started FY25 with firm positive developments, setting a positive tone for the months ahead. As in July, a drop in CPI inflation suggested that the economy is on track to achieve single-digit inflation in the coming months.

“Both the fiscal and external sectors have shown resilience, attributed to improved management. The current account has improved, and the FBR tax collection exceeded the target”.

Conceding that Large-Scale Manufacturing (LSM) slightly decreased in June year-on-year due to a decline in textile, non-metallic minerals, beverages, iron and steel, automobiles and tobacco but was projected to sustain an overall positive growth trajectory in FY25 — on the back of improved external demand, stable exchange rate, receding inflation and easing of monetary policy.

Improved economic indicators have set positive tone for coming months

From an agricultural outlook, Kharif production depends on the crop’s specific weather pattern, which will play a critical role in crop yield, the Ministry of Finance (MOF) said. The recent and ongoing rainfall spells can positively and negatively impact rice, sugarcane, cotton, fodder and vegetables if the rains do not sweep away the farmlands.

Nevertheless, the MoF hoped the agriculture sector targets set for the current fiscal year would be met based on a 25pc increase in agricultural credit disbursement to Rs2.216 trillion in FY24.

Also, it is believed that a significant rise in the import of agriculture machinery and implements by 122.8pc to $ 91.3 million in FY24 indicated a continued boost in investment in farming technology, paving the way for enhanced productivity and efficiency in the agriculture sector.

However, it reported that urea offtake during Kharif (April-July) remained at 1,822,000 tonnes, 13.5pc less than Kharif 2023, while DAP offtake increased by 8.2pc to 419,000 tonnes compared to Kharif 2023. Also, the Pakistan Cotton Ginners Association reported a decline in cotton arrivals by almost half as of July 15.

Disclaimer

On the external front, exports, imports, and worker’s remittances (WRs) followed an upward trend. For the outlook, the MOF “expected that exports would remain within the range of $2.5-$3.2bn, imports $4.5-$5bn and remittances $2.6-$3.3bn in August.

At the same time, the MOF also came up with a disclaimer. “The stable outlook of external sector hinges upon stable exchange rate, revived domestic economic activities, better agriculture output, low domestic and global commodity prices and improved foreign demand”, it said.

Regarding the industrial sector, the report said the LSM sector had so far maintained a positive outlook. It posted 0.9pc growth in FY24 against the contraction of 10.3pc in the preceding year. “However, in June, LSM shrank 0.03pc on a year-on-year basis.

On the other hand, the performance of food, apparel, coke and petroleum products, chemicals, and pharmaceuticals remained encouraging thus contributing to overall growth in LSM in FY24. Moreover, the auto industry started to pick up in July FY25, as the production and sales of all vehicles witnessed an increase of 15.3pc and 16.9pc, respectively.

At 11.1pc in July, the MoF said the major drivers of a year-on-year increase in CPI were perishable food items (29.2pc), housing, water, electricity, gas and fuels (25.3pc), besides health, clothing, transport and others.

It said the monetary policy was easing owing to low inflationary pressures, and the stock market performed well.

The policy rate adjustment will keep inflationary expectations well-anchored and support the sustainable economic recovery in FY025, the MoF concluded.

Published in Dawn, August 31st, 2024