Finance ministry projects inflation at around 9pc

Updated 29 Sep 2020

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The government on Monday said the overall macroeconomic indicators were moving in a positive direction to put the economy on a long-term sustainable growth path. — Shahab Nafees/File
The government on Monday said the overall macroeconomic indicators were moving in a positive direction to put the economy on a long-term sustainable growth path. — Shahab Nafees/File

ISLAMABAD: Projecting mixed prospects for crops and inflation at around 9 per cent, the government on Monday said the overall macroeconomic indicators were moving in a positive direction to put the economy on a long-term sustainable growth path.

The Ministry of Finance in its Monthly Economic Update and Outlook for September revealed that revenue collection by the Federal Board of Revenue (FBR) stood at only Rs586.6 billion in the first two months (July-August) of the current fiscal — about Rs6.5bn lower than Rs593bn reported by the FBR. The collection posted 1.8pc growth when compared to Rs576bn during the same period last year.

Although the finance ministry reported 56pc growth in non-tax revenue and a tight control on expenditures showing 5pc reduction, it said the expenditure side would remain under pressure because of high public spending due to Covid-19.

“Looking forward, based on current economic, fiscal, monetary and exchange rate policies and on prospects for the international environment, economic activity is expected to rebound in the first quarter of FY21, compared to the last quarter of previous fiscal year.” said the Economic Adviser’s Wing of the finance ministry.

Observes macroeconomic indicators are moving in positive direction

The ministry said that based on current information and in absence of unexpected shocks, year-on-year inflation rate in the first quarter of FY2020-21 will be substantially lower than the one observed in the first quarter of FY2019-20.

It said the consumer price index (CPI) was expected to be slightly higher because of positive growth in the first two weeks of the sensitive price index (SPI). On the basis of this information, “headline inflation is expected to remain within a range of 7.8 to 9pc in September 2020” and inflation for the first quarter of FY2021 was expected to be around 8.4–9pc, compared to 10.1pc in the corresponding period last year.

The report said torrential rains during the last two months damaged a few crops in south Punjab and Sindh and thus increased the cost of production for farmers, although it also improved long-term water availability. “Area under cotton has been decreased by 12.2pc as compared with last year, which is a downside risk for overall crops growth.”

On the other hand, water intensive crops — sugarcane and rice — are expected to improve in terms of yield owing to better water availability. Therefore, so far prospects for crop sector growth are mixed, but livestock will benefit from green pastures and is expected to post healthy growth.

Talking about the external sector, the finance ministry said the exports remained at $1.5bn in August 2020, which were negatively impacted by heavy rains in Karachi but were expected to have recovered in September. Hence, for the first quarter of FY2021, exports are expected to remain at around $5.2-5.8bn, as compared to $6bn during the same period last year.

Imports in August 2020 remained at $3.2bn, compared to $3.5bn in August last year. Imports are expected to be around $10.0-11.1bn for the first quarter this year, compared to $11bn of last year.

Remittances from Pakistanis working abroad remained at $2.1bn in August 2020, compared to $1.7bn in August last year. It is expected that remittances will remain $6.2-6.5bn in the first quarter this year, compared to $5.4bn of last year. As these remittance inflows are financing the trade deficit, “it is expected that first quarter will show a surplus or at least end up around balance in current account”.

The finance ministry expected an improvement in foreign direct investment and other financial inflows. These developments are contributing to a stable exchange rate and official reserves.

Published in Dawn, September 29th, 2020