Govt vows structural reforms to improve public finances

ISLAMABAD: Attributing easing of inflationary pressures to robust agriculture output, lower fuel prices and high base effect of last year, the government on Wednesday promised strong commitment ahead of the next year budget to strengthening of public finances through reforms and initiatives on both revenue and expenditure sides, supported by the next three-year IMF bailout programme.

The inflation outlook continues “on a downward trajectory, attributed to elevated inflation levels previous year and improvements in domestic supply chain of perishable items, staple food like wheat and reduction in transportation costs”, the Ministry of Finance said on Wednesday in its monthly Economic Update & Outlook (May 2024).

“Inflation is anticipated to remain within the range of 13.5-14.5pc for May 2024. Nonetheless, there are prospects for a gradual easing, with expectations of a decrease to 12.5-13.5pc by June 2024,” it added.

The CPI inflation stood at 17.3pc on a year-on-year basis in April as compared to 36.4pc in April 2023. The major drivers were housing, water, electricity, gas & fuel, perishable food items, furnishing & household equipment maintenance, clothing & footwear and transport.

Inflation will decline to 12pc next month on back of robust agriculture output, says finance ministry

The government also claimed credit for declining inflationary trend “through stringent administration measures”, saying a key pillar in this strategy was the ‘bolstered availability of food items, which is crucial for taming inflationary pressures’.

In May, petroleum product prices dropped twice, positively impacting the CPI for the month. Lower fuel prices reduced transportation costs, contributing to this favorable CPI trend. The SPI has recorded a decline for the fourth consecutive week which augurs well for CPI outlook.

As the fiscal year comes to a close, the finance ministry painted a rosy picture. It said the “economic indicators demonstrate strengthening of stability in the real, fiscal and external sectors”, and added that GDP growth was elevating while inflation rates were on a decline with a positive primary balance, reflecting the effectiveness of recent fiscal consolidation efforts.

The report said the economic performance also revealed that agriculture had been a major contributor to this fiscal year’s economic upswing, “attributed to government-led initiatives that enhanced input supply and credit disbursements”.

The LSM sector experienced a contraction but had shown improvement compared to the previous year. Fiscal measures have boosted both tax and non-tax revenues, helping maintain a stable fiscal deficit, while improvement in the current account balance highlight a healthier external sector driven by better trade balances and increased foreign direct investment.

“The economic outlook is promising as industrial activities are gradually improving, inflation is on a downward trajectory and the external sector is stable,” the ministry said, adding that the economy will gain momentum in the coming months of this fiscal year on the back of fiscal consolidation.

The report said the expenditure sector remained under significant pressure due to rising markup payments, but the government adopted a prudent expenditure management strategy to counter the challenge, which helped in restricting the growth in non-markup current spending to 20.4pc during July-March FY2024 relative to a 54pc increase in markup expenditures. Resultantly, a primary surplus of 1.5pc of GDP has been achieved, indicating substantial progress towards meeting the full-year primary surplus target of 0.4pc of GDP.

Although farmers are currently in the process of sowing kharif crops 2024, initial input situation highlighted favourable production against last year’s output. Furthermore, the commodity prices were expected to remain stable due to better crops production.

“The targeted subsidies will also be critical to deal with the financial challenges farmers face during the season,” the report said, claiming that the incentives offered by the federal government and the recently introducing Kissan Card Scheme by government of Punjab and incentives by other provincial governments were favourable for the agriculture-led economic growth.

Above-normal precipitation forecast by Pakistan Meteorological Department also raised hopes for better agriculture outcome.