The Ministry of Finance has warned that headline inflation is anticipated to remain heightened in the upcoming months, further exacerbating public and government concerns.
In a monthly economic update report published on Saturday, the Finance Ministry predicts consumer price index (CPI)-based inflation to be around 36-38% for April. The main factors driving this are increasing food and energy costs, currency depreciation, and higher administered prices. In addition, although global commodity prices are trending downward, they remain higher than pre-pandemic levels.
The report also highlights that slow recovery from flood-induced damage has caused the supply of essential crops to fall short of domestic needs, intensifying inflation. Despite the State Bank of Pakistan (SBP) implementing contractionary monetary policy, inflationary expectations remain unsettled. The federal government is working with provincial governments to monitor the demand-supply gap of essential items and implement measures to alleviate inflationary pressures.
Read: Pakistan’s Weekly Inflation Soars Amid Food and Petrol Price Hikes
Pakistan’s economy still faces significant challenges, including elevated inflation and a slowdown in economic activities. However, the government’s stabilization policies have resulted in some positive outcomes, such as the current account of the balance of payment (BOP) turning into a surplus. This could improve external financing constraints, stabilize the exchange rate, and boost economic confidence.
The Ministry of Finance is hopeful that completing the International Monetary Fund (IMF) program will increase capital inflows, stabilize the exchange rate, and reduce inflationary pressures.
The availability of agricultural inputs such as seeds, credit, and fertilizers is expected to remain satisfactory during Kharif 2023. However, the Pakistan Met Department (PMD) forecasts slightly above-normal rainfall for the next three months (April-June 2023), particularly in the upper half of the country, with lower amounts of rain expected in June. This seasonal rainfall may provide water for crops in rain-fed areas, while lower parts of the country may experience slight deficiencies during the Kharif season.
Read: Unprecedented 47.23% YoY Inflation in Pakistan: Soaring Food Prices to Blame
Despite the challenges, the government is focused on fiscal consolidation efforts to create fiscal buffers and restore macroeconomic stability. This has led to increased revenues from tax and non-tax collections and a reduction in overall spending growth due to a significant decrease in non-markup expenditures. However, risks to the financial sector still exist, and the government must continue to implement effective revenue mobilization and cautious expenditure management strategies to reduce the fiscal deficit.
