Report shows economy improving as a result of stabilization measures
Published on: November 1, 2023.
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The economic indicators for the first quarter of the current fiscal year (2023-24) show that Pakistan’s economy is experiencing positive growth due to government stabilization measures, according to a recent report released by the finance ministry. The report states that the gains made in fiscal and external accounts are starting to have a positive impact on economic activity.
One of the positive signs is the performance of the Pakistan Stock Exchange (PSX), which has rallied 11% in October and has surpassed 51,000 points for the first time since May 2017. Additionally, both international and domestic bond markets have rallied around 8% in October due to expectations of easing inflationary pressures and a positive outlook for the International Monetary Fund (IMF) staff review in November.
The Pakistani rupee (PKR) has also shown improvement, recovering 9% in October as a result of reforms in exchange companies and crackdowns on illegal transactions. This improvement in the exchange rate contributes to a more stable economic environment.
In terms of manufacturing, the recent release of data shows a positive growth of 0.5% during July-August FY2024, compared to a contraction of 1.3% last year. This indicates a positive trend in the manufacturing sector.
In the agriculture sector, both cotton and rice production have seen significant increases. Cotton production is estimated to have increased by 126.6% for 2023-24, while rice production has surged by 18.0% compared to last year. These increases bode well for exports and the overall economic outlook.
The report also highlights positive performance in the tractor industry, with a steep growth of 45.0% in production and 64.1% in sales for July-September FY2024 compared to the same period last year. This indicates a positive trend in the agricultural machinery sector.
On the revenue front, the first quarter of FY2024 has shown strong performance, leading to a primary surplus of Rs 417bn (0.4% of GDP) against the target of Rs 87bn under the IMF Standby agreement (SBA). The Federal Board of Revenue (FBR) revenues reached Rs 2,042bn, exceeding the target of Rs 1,978bn for the first quarter. This strong revenue performance is primarily driven by a 37% year-on-year increase in direct taxes and a 61% increase in Federal Excise Duty (FED) collection.
Moving to the external sector, foreign direct investment (FDI) reached $402.3 million during July-September FY2024, up 15.0% from last year, largely due to Chinese investments in projects related to the China Pakistan Economic Corridor (CPEC).
Exports have also shown improvement, with a 1.5% increase in September 2023 compared to August 2023, reaching $2.5 billion. The rebound in economic activity in major trading partners, along with relaxed import restrictions, has mitigated disruptions in the supply of raw materials and supported export-oriented industries.
The narrower trade balance has positively impacted the current account, which recorded a deficit of $947 million for July-September FY2024, compared to a deficit of $2.3 billion last year. However, workers’ remittances have decreased by 19.8% during the period under review, standing at $6.3 billion. On a month-on-month basis, remittances have increased by 5.3% due to a narrower gap between interbank and open market exchange rates.
In terms of the fiscal sector, the performance during July-August FY2024 remained satisfactory, with a significant rise in revenues relative to expenditures. The fiscal deficit stood at the same level as last year, 0.8% of GDP, while the primary balance posted a surplus of Rs 144.8 billion compared to a deficit of Rs 90.2 billion during the same period last year.
Looking ahead, the report anticipates that overall economic activity will remain positive throughout the fiscal year due to a rebound in domestic economic activities and improvements in inflationary pressures. The government is also making concerted efforts to address macroeconomic imbalances and work towards stabilization and sustainable economic growth in the medium to long term. Inflation is projected to be better contained compared to the elevated levels observed in the first quarter of FY2024, with an estimated range of 27 to 29 percent for October 2023.
The report also mentions that recent administrative and regulatory actions have helped narrow the gap between interbank and open market exchange rates, and the government is taking measures to control inflationary pressure in FY2024.
Overall, the economic indicators for Pakistan’s economy in the first quarter of FY2023-24 show positive momentum and promising growth. The government’s stabilization measures and efforts to address macroeconomic imbalances have contributed to this positive outlook.
Source: [Daily Times](https://dailytimes.com.pk)
